Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by New York Stock Exchange LLC Amending Its Rules To Incorporate the Receipt and Execution of Odd-Lot Interest Into the Round Lot Market and Decommission the Use of the “Odd-Lot System”, 35856-35861 [2010-15132]

Download as PDF 35856 Federal Register / Vol. 75, No. 120 / Wednesday, June 23, 2010 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62302; File No. SR–NYSE– 2010–43] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by New York Stock Exchange LLC Amending Its Rules To Incorporate the Receipt and Execution of Odd-Lot Interest Into the Round Lot Market and Decommission the Use of the ‘‘Odd-Lot System’’ June 16, 2010. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on June 9, 2010, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the selfregulatory organization. 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 to amend its rules to incorporate the receipt and execution of odd-lot interest into the round lot market and decommission the use of the ‘‘Odd-lot System.’’ The text of the proposed rule change is available at the Exchange, on the Commission’s Web site at https://www.sec.gov, the Commission’s Public Reference Room, and https://www.nyse.com. mstockstill on DSKH9S0YB1PROD with NOTICES 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 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 VerDate Mar<15>2010 16:17 Jun 22, 2010 Jkt 220001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its rules to incorporate the receipt and execution of odd-lot interest into the round lot market and decommission the use of the ‘‘Odd-lot System.’’ 4 Background Round lot interest on the Exchange is executed by Display Book® 5 pursuant to NYSE Rule 72 on a priority or parity basis.6 Odd-lot interest, however, is processed in an Exchange system designated solely for handling and execution of odd-lot interest (the ‘‘Oddlot System’’).7 The Odd-lot System is a separate system from the Display Book that executes odd-lot interest and the odd-lot portion of part of round lot (‘‘PRL’’) interest.8 NYSE Rule 124 governs handling and execution of odd-lot interest and the odd-lot portion of PRL interest in the Odd-lot System. Pursuant to the provisions of NYSE Rule 124 all odd-lot interest and odd-lot portion of PRL interest is executed against the DMM as the contra party.9 NYSE Rule 124 4 The Exchange notes that parallel changes are proposed to be made to the rules of the NYSE Amex Exchange. See SR–NYSE Amex–2010–53. 5 The Display Book system is an Exchange order management and execution facility. The Display Book system receives and displays interest to the DMM, provides the data feed for NYSE OpenBook® that is available to market participants, contains order information and provides a mechanism to execute and report transactions, and publishes 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. NYSE OpenBook provides subscribers a real-time view of the Exchange’s limitorder book for all NYSE-traded securities. 6 NYSE Rule 72 provides that all market participants receive an allocation of executed shares on an equal basis (‘‘parity’’) with other interest available at that price. In addition, where there is more than one bidder (offerer) participating in an execution and one of the bids (offers) was clearly established as the first made at a particular price and such bid or offer is the only interest when such price is or becomes the best bid or offer published by the Exchange (the ‘‘Setting Interest’’), that [sic] the displayed portion of such Setting Interest is entitled to priority. In order to qualify as Setting Interest, it must have been the only interest quoted at a price. Only the quoted (i.e., displayed) portion of the Setting Interest is entitled to priority (‘‘Priority Interest’’). 7 See NYSE Rule 124(a). 8 PRL orders are for a size within the standard unit (round-lot) of trading, which is 100 shares for most stocks, but contains a portion that is smaller than the standard unit of trading, e.g. 199 shares. It should be noted that for certain securities trading on the NYSE the standard unit of trading is 10 shares. See Supplementary Material .40 of NYSE Rule 124. 9 See NYSE Rule 124(a). PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 outlines the complex pricing formula used to determine the price of odd-lot executions. Generally, the execution price of odd-lot interest is determined based on: (i) The price of executions in the round lot market; (ii) whether the odd-lot interest was marketable or nonmarketable upon receipt in the Odd-lot System; and (iii) in certain instances the Exchange system that initially received the interest.10 Proposed Amendments To Incorporate Odd-Lots and Odd-Lot Portion of PRL Interest in the Round Lot Market The Exchange is proposing to terminate the Odd-Lot System and incorporate odd-lot interest and the odd-lot portion of PRL interest into the round lot market thus enabling such interest to interact with all other market interest and be priced in accordance with overall supply and demand dynamics. Pursuant to the proposed rule change, odd-lot interest and odd-lot portion of PRL interest will be accepted and executed in the Display Book. In order to incorporate interest for fewer than 100 shares into the round lot market, the Exchange proposes that the new unit of trading for all securities be 1 share.11 Although the new unit of trade will be 1 share, the concepts of round lots and odd-lots remain for the purposes of quoting as explained in more detail below. There will no longer be a separate execution pricing structure for odd-lot 10 For a fuller discussion of the operation of the current odd-lot system see, Securities Exchange Act Release No. 56551 (September 27, 2007), 72 FR 56415 (October 3, 2007) (SR–NYSE–2007–82) (modifications to methodology of pricing and executing orders in the Odd-lot System); Securities Exchange Act Release No. 59613 (March 20, 2009), 74 FR 13486 (March 27, 2009) (SR–NYSE–2009–27) (modification to pricing and execution methodology to execute odd-lot portion of the PRL orders pursuant to pricing structure in NYSE Rule 124(c) and (d).); Securities Exchange Act Release No. 60138 (June 18, 2009), 74 FR 30337 (June 25, 2009) (SR–NYSE–2009–45) (Clarification of the pricing methodology for the odd-lot portion of a PRL order and the systems capable of accepting PRL and Good ’Til Cancelled Orders during the implementation of Exchange system enhancements). 11 See Proposed NYSE Rule 55 and 56. In addition, proposed NYSE Rule 55 retains the ability of the Exchange to designate securities to be quoted in less than 100 shares. Investors may subscribe to an NYSE market data product to obtain information on the securities designated to quote in less than 100 share increments. Securities so designated pursuant to NYSE Rule 65 are to ‘‘be dealt in as provided in Rule 64.’’ Because the other provisions of Rule 65 no longer apply when odd-lots are incorporated into the round lot market, the Exchange further proposes to incorporate this concept into the provisions of proposed NYSE Rule 55 and delete the provision of NYSE Rule 65 in its entirety. The Exchange further proposes to amend Supplementary Material subparagraph (2)(c) of NYSE Rule 115A (‘‘Orders at Opening or in Unusual Situations’’) to change the term ‘‘unit of trading’’ to one round lot. E:\FR\FM\23JNN1.SGM 23JNN1 35857 Federal Register / Vol. 75, No. 120 / Wednesday, June 23, 2010 / Notices interest and the odd-lot portion of PRL interest. Further, because the trading of odd-lot interest and the odd-lot portion of PRL interest is being incorporated in the round lot market the Exchange no longer needs the DMM to act in the capacity of odd-lot dealer. The DMM will no longer be the contra party to all odd-lot executions except for odd-lot size quantity that pursuant to Exchange rules is to be executed in the opening, re-opening and closing transactions that remain unpaired.12 The Exchange therefore seeks to rescind rules that govern odd-lot dealers and the distinct pricing for odd-lot interest and the oddlot portion of PRL interest. Specifically, the Exchange proposes to rescind the provisions of NYSE Rules 99 (‘‘RoundLot Transactions of Odd-Lot Dealer and Broker’’), 99 Former (‘‘Round-Lot Transactions of Odd-Lot Dealer and Broker’’), 100 (Round-Lot Transactions of Odd-Lot Dealer or Broker Affecting Odd-Lot Orders’’), 101 (‘‘Registration of Odd-lot Dealers and Brokers’’) and 124 (‘‘Odd-Lot Orders’’) and retain the rule numbers as reserved. Similarly, the Exchange proposes to delete all references to Odd-Lot Dealers in NYSE Rules 94 (‘‘Designated Market Markers or Odd-Lot Dealers Interest in Joint Accounts’’) and 108 (‘‘Limitation on Members’ Bids and Offers’’). Odd-lot interest and the odd-lot portion of PRL interest will be generally quantities will not be displayed as the Exchange quotation and odd-lot executions are not published to the Consolidated Tape. The Exchange proposes to amend NYSE Rule 61 to delete: (i) The requirement that odd-lot orders be executed via the Odd-lot System; and (ii) references to rescinded rule text. The Exchange further proposes to re-order the remaining substantive provisions of the rule and update the rule text with currently recognized references, for example wordy descriptions of PRL will be replaced with part of round lot or PRL. Pursuant to the instant proposal Display Book will aggregate all interest at each limit price, including odd-lot interest and the odd-lot portion of PRL interest. Interest will be quoted if it is equal to or greater than a round lot when the price point becomes the Exchange best bid and offer (‘‘Exchange BBO’’). For example, Table 1 below depicts the Exchange BBO as 200 shares bid at $20.05 and 200 shares offered at $20.10. The quoted offer includes two non-reserve orders for 100 shares each; however, the quoted bid includes one non-reserve order to buy for 100 shares and two odd-lot non-reserve orders for 50 shares each. The 50 shares at the price point of $20.07 are not quoted because it is less than a round lot. subject to all the provisions of Exchange rules that heretofore applied only to interest executed in the round lot market except as described herein. The Exchange therefore seeks to delete current subparagraph (e) of NYSE Rule 13 under the Auto Ex Order and make conforming changes to the lettering. The inclusion of odd-lot interest and the odd-lot portion of PRL interest in the round lot market will obviate the need for a specific provision authorizing automatic execution for the round lot portion of a PRL order. In addition, the Exchange proposes to delete the provisions of current subparagraph (f) of NYSE Rule 14, which restricts nonregular way settlement instructions solely to round lot and PRL interest. Floor brokers will now be permitted to accept orders containing non-regular way settlement instructions in odd-lot quantities because they will be able to represent them in the round lot market. Current subparagraph (g) of NYSE Rule 14 will be amended to become new subparagraph (f) of proposed NYSE Rule 14. Order Handling, Execution, Allocation In order to incorporate odd-lot interest and the odd-lot portion of PRL interest into the round lot market, the Exchange must amend rules governing order handling, execution and allocation to reflect that odd-lot TABLE 1 Quoted interest Displayable interest available 0 ........................................................................................... 50 ......................................................................................... 50, 50, 100 ........................................................................... Display Book will continue publishing the Exchange BBO which may now include aggregated odd-lot interest and the odd-lot portion of PRL interest. The Exchange therefore proposes to amend NYSE Rule 60 to clarify that a bid or offer may also be the aggregation of odd-lot interest and the odd-lot portion of PRL interest, the sum of which is equal to or greater than a round lot.13 The Exchange BBO will still mstockstill on DSKH9S0YB1PROD with NOTICES 12 See Proposed NYSE Rule 104(e). Rule 60 currently provides that the terms ‘‘bid’’ or ‘‘offer’’ shall have the meaning given to them in section 242.602 (‘‘Rule 602’’) of Regulation National Market System (‘‘Reg. NMS’’), 17 CFR part 242. Reg. NMS, Rule 600 provides that: Bid or offer means the bid price or the offer price communicated by a member of a national securities exchange or member of a national securities association to any broker or dealer, or to any customer, at which it is willing to buy or sell one 13 NYSE VerDate Mar<15>2010 16:17 Jun 22, 2010 Jkt 220001 Bid price 0 0 200 Offer price ........................ $20.07 20.05 $20.10 ........................ ........................ Displayable interest available Quoted interest 200 0 0 100, 100 0 0 be quoted in round lots.14 The Exchange proposes to include odd-lot interest and the odd-lot portion of PRL interest in the Exchange BBO only when such oddlot interest may be aggregated with other interest at the price point resulting in a sum that would be equal to or greater than a round lot.15 Because odd-lot interest and the oddlot portion of PRL interest will be eligible for inclusion in the Exchange BBO such interest will be considered ‘‘displayable’’ interest for the purposes of execution and allocation pursuant to the provisions of NYSE Rule 72. Consistent with the current operation of NYSE Rule 72, interest will not be considered displayable when such interest is affirmatively designated as excluded interest (e.g. reserve interest). In addition, consistent with the current logic of priority and parity, or more round lots of an NMS security, as either principal or agent, but shall not include indications of interest. 14 See Consolidated Tape Plan (‘‘CTA Plan’’) Second Restatement of Plan Submitted to The Securities and Exchange Commission Pursuant to Rule 11Aa3–1 Under the Securities Exchange Act of 1934 at page 26 Section VI.(d)(iv). See also Securities Exchange Act Release Nos. 10787 (May 10, 1974), 39 FR 17799 (order approving CTA Plan). The most recent restatement of the CTA Plan was in 1995. The CTA Plan, pursuant to which markets collect and disseminate last sale price information for non-NASDAQ listed securities, is a ‘‘transaction reporting plan’’ under Rule 601 under the Act, 17 CFR 242.601, and a ‘‘national market system plan’’ under Rule 608 under the Act, 17 CFR 242.608. See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). 15 See Proposed NYSE Rule 72(a). PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 E:\FR\FM\23JNN1.SGM 23JNN1 35858 Federal Register / Vol. 75, No. 120 / Wednesday, June 23, 2010 / Notices incoming single odd-lot interest will never be eligible to be the Priority Interest because it can never be the only interest quoted at the price point.16 For example, Table 2 and 3 below depict the Exchange BBO in XYZ security. Initially, the Exchange BBO is 200 shares bid at $20.05 and 100 shares offered at $20.11. The quoted offer includes two non-reserve orders for 50 shares each and the quoted bid includes one non-reserve order to buy for 150 shares and two odd-lot non-reserve orders for 50 shares each.17 There is no Priority Interest in the Exchange BBO because none of the orders were the only independently displayable interest quoted at the price point when it became the Exchange BBO. Subsequently an order to sell 200 shares at $20.10 is received. Table 3 shows the Exchange BBO is updated to reflect 200 shares offered at $20.10 and 200 shares bid at $20.05. The 200 share order at $20.10 is Priority Interest because it was the only independently displayable interest capable of being quoted at the price point when the price point became the Exchange BBO. TABLE 2 Quoted interest Displayable interest available 0 ........................................................................................... 0 ........................................................................................... 0 ........................................................................................... 0 ........................................................................................... 10, 20, 30 ............................................................................. 10, 10, 25, 50 ....................................................................... 50, 50, 150 ........................................................................... Bid price ........................ ........................ $20.09 20.08 20.07 20.06 20.05 Offer price ........................ ........................ $20.09 20.08 20.07 20.06 20.05 Displayable interest available Quoted interest $20.11 20.10 20.09 ........................ ........................ ........................ ........................ Bid price 0 0 0 0 0 0 200 Offer price $20.11 20.10 20.09 ........................ ........................ ........................ ........................ 100 0 0 0 0 0 0 50, 50 0 0 0 0 0 0 TABLE 3 Quoted interest Displayable interest available 0 ........................................................................................... 0 ........................................................................................... 0 ........................................................................................... 0 ........................................................................................... 10, 20, 30 ............................................................................. 10, 10, 25, 50 ....................................................................... 50, 50, 150 ........................................................................... For the same reason, single odd-lot interest at a price point may not prevent single displayable round lot or PRL interest from establishing itself as Priority Interest. When single round lot or PRL interest joins odd-lot interest at a price point and the sum of the oddlot interest is not equal to a round lot, the single round lot or PRL that is published as the Exchange BBO is considered the setting interest and has established priority at that price point.18 For example, Table 4 and 5 below 0 0 0 0 0 0 200 depict the Exchange BBO in XYZ security. Initially, the Exchange BBO is 200 shares bid at $20.05 and 100 shares offered at $20.11. The quoted offer includes two non-reserve orders for 50 shares each and the quoted bid includes one non-reserve order to buy for 100 shares and two odd-lot non-reserve orders for 50 shares each. There is no Priority Interest in the Exchange BBO because none of the displayable orders were the only independently displayable interest quoted at the price Displayable interest available Quoted interest 100 200 0 0 0 0 0 50, 50 200 0 0 0 0 0 point when the price point became the Exchange BBO. Subsequently an order to sell 150 shares at $20.10 is received. Table 5 shows the Exchange BBO is updated to reflect 200 shares offered at $20.10 and 200 shares bid at $20.05. The 150 share order at $20.10 is entitled to be Priority Interest because it was the only independently displayable interest capable of being quoted at the price point when it became the Exchange BBO. TABLE 4 mstockstill on DSKH9S0YB1PROD with NOTICES Displayable interest available Quoted interest Bid price Offer price 0 ........................................................................................... 0 ........................................................................................... 0 ........................................................................................... 0 ........................................................................................... 10, 20, 30 ............................................................................. 10, 10, 25, 50 ....................................................................... 50, 50, 100 ........................................................................... 0 0 0 0 ........................ ........................ 200 ........................ ........................ $20.09 20.08 20.07 20.06 20.05 $20.11 20.10 20.09 ........................ ........................ ........................ ........................ 16 See supra, note 11. is also important to note that in this example although the total number of shares bid on the 17 It VerDate Mar<15>2010 16:17 Jun 22, 2010 Jkt 220001 Exchange at the Exchange best bid is 250 shares the quoted bid is 200 shares consistent with the PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 Displayable interest available Quoted interest 100 0 0 0 0 0 0 50, 50 50 0 0 0 0 0 provisions of proposed NYSE Rule 55. See also supra, note 10. 18 See Proposed NYSE Rule 72(a)(iv). E:\FR\FM\23JNN1.SGM 23JNN1 35859 Federal Register / Vol. 75, No. 120 / Wednesday, June 23, 2010 / Notices TABLE 5 Quoted interest Displayable interest available 0 ........................................................................................... 0 ........................................................................................... 0 ........................................................................................... 0 ........................................................................................... 10, 20, 30 ............................................................................. 10, 10, 25, 50 ....................................................................... 50, 50, 100 ........................................................................... PRL interest that is established as Priority Interest, establishes priority for the full quantity of the PRL interest. For example, a 199 share buy limit order with no designated reserve quantity that is the only interest available at the price point when it is quoted will constitute 199 shares of Priority Interest although the Exchange Bid will only quote 100 shares. Moreover, and consistent with the handling of Priority Interest of round lot interest, PRL interest will retain its Priority Interest status even if subsequent executions of the original interest decrement the quantity of the shares remaining in the interest to less than a round lot. Priority Interest will only lose its priority status if it is cancelled, executed in full or routed away for execution and returned unexecuted.19 Display Book as the matching engine for the Exchange will be responsible for the execution of all incoming interest regardless of the share size consistent with all applicable Exchange rules and federal securities laws. All incoming interest will be eligible to be executed against eligible contra side interest. DMM CCS interest will be accessed to fill or partially fill 20 incoming interest except, that Display Book will not access DMM CCS interest to provide an execution for an incoming odd-lot order. The Exchange proposes to amend NYSE Rule 1000 (d)(i) to clarify that DMM CCS interest will be accessed in reaction to incoming contra side interest that is equal to or greater than one round lot. As is the case today, DMM CCS interest must be for a minimum of a round lot mstockstill on DSKH9S0YB1PROD with NOTICES 19 See Proposed NYSE Rule 72(b)(iv). Priority of the setting interest is not retained on any portion of Priority Interest that routes to an away market and is returned unexecuted unless, such returned Priority Interest is greater than a round lot and there is no other interest available at the price point or any other interest available at the price point is less than a round lot. 20 CCS interest shall be accessed by Exchange systems to partially fill Incoming Regulation NMScompliant Immediate or Cancel Orders, NYSE Immediate or Cancel Orders and any order whose partial execution will result in a remaining unfilled quantity of less than one round lot even if such CCS interest is not designated for partial execution. See Proposed NYSE Rule 1000(e)(iii)(A)(4). VerDate Mar<15>2010 16:17 Jun 22, 2010 Jkt 220001 Bid price 0 0 0 0 0 0 200 Offer price ........................ ........................ $20.09 20.08 20.07 20.06 20.05 $20.11 20.10 20.09 ........................ ........................ ........................ ........................ however, a DMM will be allowed to provide interest in PRL quantities.21 For example, today a DMM unit may be willing to provide 150 shares of additional liquidity at the price point. Pursuant to current NYSE Rule 1000 the DMM unit is only allowed to provide 100 shares or must go past its risk tolerance to provide 200 shares. Pursuant to the proposal DMM CCS interest may be designated at the price point in any amount equal to or greater than a round lot, (i.e. 150 shares in the previous example). Executions will be printed to the Consolidated Tape in round lots or PRL quantities. Transactions that result in executions of less than a round lot will not: (i) Print to the Consolidated Tape; 22 (ii) be considered the last sale; and (iii) elect buy minus, sell plus or stop interest for execution.23 The Exchange therefore proposes to amend NYSE Rule 1004 to clarify that buy minus, sell plus and stop interest are elected by executions that are reported to the Consolidated Tape.24 Moreover, because liquidity replenishment points (‘‘LRP’’) values are calculated based on the last sale on the Exchange, NYSE Rule 1000 will be amended to clarify that for automatic executions, Exchange systems will recalculate LRP values after executions that are reported to the Consolidated Tape. Display Book will continue to allocate executed shares in round lots; however, if the quantity of shares to be allocated to a specific participant is for a quantity less than a round lot, the Display Book will allocate to the participant the specific number of shares bid or offered. The Exchange proposes to amend NYSE Rule 72(c)(viii) to state that shares are allocated in round lots or the size of the order if less than one round lot. 21 See Proposed NYSE Rule 1000(d)(ii). supra, note 11. 23 See Proposed NYSE Rules 13 and 61. 24 The Exchange further proposes to amend NYSE Rule 1004 to remove legacy references to Percentage Orders, which are no longer order types accepted on the Exchange. 22 See PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 Displayable interest available Quoted interest 100 200 0 0 0 0 0 50, 50 50, 150 0 0 0 0 0 Below see specific trading examples demonstrating the execution logic employing priority parity rules: 25 (A) On each trading day, the allocation wheel for each security is set to begin with the participant whose interest is entered or retained first on a time basis. Thereafter, participants are added to the wheel as their interest joins existing interest at a particular price point. If a participant cancels his, her or its interest and then rejoins, that participant joins as the last position on the wheel at that time. Parity Example 1 Assume there is interest of the Book Participant (representing orders entered by two different public customers), three Floor brokers and the DMM are bidding at the same price, with no participant established as Priority Interest. An order to sell is received by the Exchange. Exchange systems will divide the allocations among the participants, listed in time order, as follows: Public Order #1 100 shares and Public Order #2 100 shares Book Participant Floor Broker 1 Participant A DMM Participant B Floor Broker 2 Participant C Floor Broker 3 Participant D A market order for 300 shares to sell entered in Exchange systems will allocate 100 shares to the Book Participant (Public Order #1), Participant A and Participant B above. Subsequently, another order to sell 300 shares at the same price is received by Exchange systems. Those shares will be allocated to Participant C, Participant D, and Book Participant (Public Order #2). (B) The allocation wheel will move to the next participant when an odd-lot allocation completely fills the interest of such participant. Parity Example 2 Assume there is interest of the Book Participant (representing orders entered by two different public customers), three Floor brokers and the DMM are bidding at the same price, with no participant having priority. An order to sell is received by the Exchange. Exchange systems will divide the allocations among the participants as follows: Public Order #1 100 shares and Public Order #2 100 shares Book Participant Floor Broker 1 Participant A 50 shares DMM Participant B 50 shares 25 See E:\FR\FM\23JNN1.SGM Proposed NYSE Rules 72(c). 23JNN1 35860 Federal Register / Vol. 75, No. 120 / Wednesday, June 23, 2010 / Notices Floor Broker 2 Participant C 300 shares Floor Broker 3 Participant D 300 shares A market order for 200 shares to sell entered in Exchange systems will allocate 100 shares to the Book Participant (Public Order #1), Participant A will receive 50 shares, Participant B above will receive 50 shares. Subsequently, another order to sell 300 shares at the same price is received by Exchange systems. Those shares will be allocated to Participant C, Participant D, and Book Participant (Public Order #2). mstockstill on DSKH9S0YB1PROD with NOTICES Parity Example 3 Assume there is interest of the Book Participant (representing orders entered by two different public customers), three Floor brokers and the DMM are bidding at the same price, with no participant having priority. An order to sell is received by the Exchange. Exchange systems will divide the allocations among the participants as follows: Public Order #1 100 shares and Public Order #2 100 shares Book Participant Floor Broker 1 Participant A 50 shares DMM Participant B 75 shares Floor Broker 2 Participant C 300 shares Floor Broker 3 Participant D 300 shares A market order for 200 shares to sell entered in Exchange systems will allocate 100 shares to the Book Participant (Public Order #1), Participant A will receive 50 shares, Participant B above will receive 50 shares. Subsequently, another order to sell 300 shares at the same price is received by Exchange systems. The allocation wheel will start with Participant B. Participant B is allocated 25 shares, Participant C is allocated 100 shares, Participant D is allocated 100 shares, and Book Participant (Public Order #2) is allocated 75 shares. Exchange systems will retain Book Participant (Public Order #2) as the participant eligible to receive the next allocation at that price point. (C) The allocation wheel will also move to the next participant where Exchange systems execute remaining displayable odd-lot interest prior to replenishing the displayable quantity of a participant. Parity Example 4 Assume the available bid interest on the Exchange consists of a single Book Participant and two Floor brokers listed below in order of their position on the allocation wheel None of the participants have priority. Floor Broker 1 Participant A—200 shares displayed and 4800 shares reserve Book Participant Public Order #1 Participant B—500 shares displayed Floor Broker 2 Participant C—500 shares displayed An order to sell 350 shares is received by the Exchange. Exchange systems will divide the allocations among the participants as follows: Participant A—150 shares Book Participant—100 shares Participant C—100 shares Each participant receives a round lot allocation. The Allocation wheel returns to Participant A as the first participant on the wheel and allocates the remaining 50 shares. The allocation wheel remains on Participant VerDate Mar<15>2010 16:17 Jun 22, 2010 Jkt 220001 A. The remaining interest of the three participants is as follows: Floor Broker 1 Participant A—50 shares displayed and 4800 shares reserve Book Participant Public Order #1 Participant B 400 shares displayed Floor Broker 2 Participant C 400 shares displayed Prior to the system replenishing the displayed quantity of Participant A, an order to sell 100 shares is received by Exchange systems. The system will allocate 50 shares to Participants A and B. The next allocation at the price point will begin with Participant B. Miscellaneous Amendments The Exchange proposes to amend the Section title for the grouped NYSE Rules 99–114 to delete (i) legacy references to specialists and registered traders; and (ii) the reference to Odd-lot Dealers. The amended title will read, ‘‘Designated Market Makers’ (‘‘DMMs’’) and Member Organizations’ Dealings on the Floor’’. The Exchange further proposes to delete legacy rule text that refers to Intermarket Trading System Plan and Pre-Opening Applications from subparagraph (d) of NYSE Rule 115A (‘‘Orders at Opening or in Unusual Situations’’). The Exchange also proposes to make conforming amendments to other Exchange rules that refer to odd-lot systems and dealers, including Rules 92, 94, and 104. In addition, the Exchange proposes to amend Rule 411 to delete the requirement that when a person gives, either for his own account, for various accounts in which he has an actual monetary interest, or for accounts over which such person is exercising investment discretion, buy or sell oddlot orders that aggregate 100 shares or more, such odd-lot orders must be consolidated into round lots. The Exchange proposes to delete this requirement as moot now that Exchange systems will receive odd-lot orders in the same system that handles round lot orders. Additional New Systemic Capabilities The system changes required to decommission the Odd-lot System will also enable the Exchange to expand its price fields. Previous constraints on the number of characters that could be included in a price field required a ten cent ($.10) minimum price variation for quoting and order entry in securities priced at or greater than $100,000. As a result of the new systemic capability to include additional characters in the price fields, the Exchange proposes to amend NYSE Rule 62 (‘‘Variations’’) to remove the requirement that $.10 be the minimum variation for securities priced at or greater than $100,000. Specifically, PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 the Exchange proposes to amend Supplementary Material .10 of NYSE Rule 62 to state that the minimum price variation for quoting and entry of interest in securities priced at or greater than a $1.00 will be a penny (‘‘$.01’’). In addition, the incorporation of oddlot interest and the odd-lot portion of PRL interest into Display Book will provide Exchange market data systems access to odd-lot volumes. Market participants will therefore benefit from additional transparency because the depth of book information published by the Exchange via its market data systems will now include those quantities. NYSE OpenBook® will publish in shares the total volume of interest available at each price point.26 Implementation of Proposed Amendments 27 Subject to Commission approval, the Exchange intends to progressively implement these systemic changes on a security by security basis as it gains experience with the new technology until it is operative in all securities traded on the Floor. During the implementation, the Exchange will identify on its Web site which securities have been transitioned to the new system. In addition, the Exchange will provide information to its constituents about any modifications to the start or end date related to the implementation of such proposal via its Trader Update Notices that are sent via e-mail to subscribers and posted on the Exchange Web site. 2. Statutory Basis The basis under the Act for this proposed rule change is the requirement under Section 6(b)(5) 28 that an Exchange have rules that are designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The instant proposal is in keeping with these principles in that it removes timing restrictions on the execution of odd-lot interest and the odd-lot portion of PRL interest by allowing such interest, if marketable to be immediately and automatically executed. It further promotes the interaction of such interest 26 NYSE OpenBook shows the aggregate limitorder volume at every bid and offer price, thus responding to customer demand for more depth-ofmarket data and raising the NYSE market to an even greater level of transparency. 27 See e-mail from Clare F. Saperstein, Managing Director, NYSE Regulation, Inc., to Nathan Saunders, Special Counsel, and Gary Rubin, Attorney, Commission, dated June 14, 2010. 28 15 U.S.C. 78f(b)(5). E:\FR\FM\23JNN1.SGM 23JNN1 Federal Register / Vol. 75, No. 120 / Wednesday, June 23, 2010 / Notices with all other market interest and enables it to be priced in accordance with supply and demand dynamics. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve the proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSE– 2010–43 and should be submitted on or before July 14, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Florence E. Harmon, Deputy Secretary. IV. Solicitation of Comments [FR Doc. 2010–15132 Filed 6–22–10; 8:45 am] Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Exchange Act. Comments may be submitted by any of the following methods: BILLING CODE 8010–01–P Electronic Comments Self-Regulatory Organizations; The Options Clearing Corporation; Order Granting Approval of a Proposed Rule Change Relating to Clearing Options on the CBOE Gold ETF Volatility Index • 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–2010–43 on the subject line. mstockstill on DSKH9S0YB1PROD with NOTICES Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2010–43. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use VerDate Mar<15>2010 16:17 Jun 22, 2010 Jkt 220001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62290; File No. SR–OCC– 2010–07] June 14, 2010. I. Introduction On April 26, 2010, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission the proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 1 and Rule 19b–4 thereunder 2 to allow OCC to add an interpretation following the introduction in Article XVII of OCC’s 29 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 35861 By-Laws to clarify that OCC will clear and treat as securities options any option contracts on the CBOE Gold ETF Volatility Index. The proposed rule change was published for comment in the Federal Register on May 19, 2010.3 No comment letters were received on the proposal. This order approves the proposal. II. Description of the Proposal The proposed rule change will add an interpretation following the introduction in Article XVII of OCC’s By-Laws to make clear that OCC will clear and treat as securities options any option contracts on the CBOE Gold ETF Volatility Index.4 This treatment is essentially the same as that extended to other similar options that OCC currently clears.5 In its capacity as a ‘‘derivatives clearing organization’’ registered as such with the CFTC, OCC filed this proposed rule change for prior approval by the CFTC pursuant to provisions of the Commodity Exchange Act (‘‘CEA’’) in order to foreclose potential liability based on an argument that the clearing by OCC of such options as securities options constitutes a violation of the CEA. III. Discussion Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions and derivative transactions.6 By amending its By-Laws to make clear that OCC will clear and treat as securities options any option contracts on the CBOE Gold ETF Volatility Index, OCC’s rule change should help clarify the jurisdictional status of such contracts and accordingly should help to promote the prompt and accurate clearance and settlement of securities transactions and of derivative transactions. In accordance with the Memorandum of Understanding entered into between the CFTC and the 3 Securities Exchange Act Release No. 62094 (May 13, 2010), 75 FR 28085. 4 The specific language of the new interpretation can be found on OCC’s Web site at https:// www.theocc.com/about/publications/bylaws.jsp. 5 Securities Exchange Act Release Nos. 59054, 73 FR 75159 (Dec. 10, 2008) (iShares COMEX Gold Shares and iShares Silver Shares); 61591 (Feb. 25, 2010), 75 FR 9979 (Mar. 4, 2010) (ETFS Physical Swiss Gold Shares and ETFS Physical Silver Shares); 57895 (May 30, 2008), 73 FR 32066 (June 5, 2008) (SPDR Gold Trust); 61958 (Apr. 22, 2010), 75 FR 22673 (Apr. 29, 2010) (ETFS Palladium Shares And ETFS Platinum Shares). These filings also provided that futures on the exchange-traded funds in question would be cleared and treated as security futures. 6 15 U.S.C. 78q–1(b)(3)(F). E:\FR\FM\23JNN1.SGM 23JNN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 75, Number 120 (Wednesday, June 23, 2010)]
[Notices]
[Pages 35856-35861]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-15132]

[[Page 35856]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62302; File No. SR-NYSE-2010-43]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by New York Stock Exchange LLC Amending Its Rules To Incorporate
the Receipt and Execution of Odd-Lot Interest Into the Round Lot Market
and Decommission the Use of the ``Odd-Lot System''

June 16, 2010.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on June 9, 2010, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to amend its rules to incorporate the receipt
and execution of odd-lot interest into the round lot market and
decommission the use of the ``Odd-lot System.'' The text of the
proposed rule change is available at the Exchange, on the Commission's
Web site at https://www.sec.gov, 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
The Exchange proposes to amend its rules to incorporate the receipt
and execution of odd-lot interest into the round lot market and
decommission the use of the ``Odd-lot System.'' \4\
---------------------------------------------------------------------------

\4\ The Exchange notes that parallel changes are proposed to be
made to the rules of the NYSE Amex Exchange. See SR-NYSE Amex-2010-
53.
---------------------------------------------------------------------------

Background
Round lot interest on the Exchange is executed by Display
Book[supreg] \5\ pursuant to NYSE Rule 72 on a priority or parity
basis.\6\ Odd-lot interest, however, is processed in an Exchange system
designated solely for handling and execution of odd-lot interest (the
``Odd-lot System'').\7\ The Odd-lot System is a separate system from
the Display Book that executes odd-lot interest and the odd-lot portion
of part of round lot (``PRL'') interest.\8\
---------------------------------------------------------------------------

\5\ The Display Book system is an Exchange order management and
execution facility. The Display Book system receives and displays
interest to the DMM, provides the data feed for NYSE
OpenBook[supreg] that is available to market participants, contains
order information and provides a mechanism to execute and report
transactions, and publishes 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. NYSE OpenBook provides subscribers a real-time view of the
Exchange's limit-order book for all NYSE-traded securities.
\6\ NYSE Rule 72 provides that all market participants receive
an allocation of executed shares on an equal basis (``parity'') with
other interest available at that price. In addition, where there is
more than one bidder (offerer) participating in an execution and one
of the bids (offers) was clearly established as the first made at a
particular price and such bid or offer is the only interest when
such price is or becomes the best bid or offer published by the
Exchange (the ``Setting Interest''), that [sic] the displayed
portion of such Setting Interest is entitled to priority. In order
to qualify as Setting Interest, it must have been the only interest
quoted at a price. Only the quoted (i.e., displayed) portion of the
Setting Interest is entitled to priority (``Priority Interest'').
\7\ See NYSE Rule 124(a).
\8\ PRL orders are for a size within the standard unit (round-
lot) of trading, which is 100 shares for most stocks, but contains a
portion that is smaller than the standard unit of trading, e.g. 199
shares. It should be noted that for certain securities trading on
the NYSE the standard unit of trading is 10 shares. See
Supplementary Material .40 of NYSE Rule 124.
---------------------------------------------------------------------------

NYSE Rule 124 governs handling and execution of odd-lot interest
and the odd-lot portion of PRL interest in the Odd-lot System. Pursuant
to the provisions of NYSE Rule 124 all odd-lot interest and odd-lot
portion of PRL interest is executed against the DMM as the contra
party.\9\ NYSE Rule 124 outlines the complex pricing formula used to
determine the price of odd-lot executions. Generally, the execution
price of odd-lot interest is determined based on: (i) The price of
executions in the round lot market; (ii) whether the odd-lot interest
was marketable or non-marketable upon receipt in the Odd-lot System;
and (iii) in certain instances the Exchange system that initially
received the interest.\10\
---------------------------------------------------------------------------

\9\ See NYSE Rule 124(a).
\10\ For a fuller discussion of the operation of the current
odd-lot system see, Securities Exchange Act Release No. 56551
(September 27, 2007), 72 FR 56415 (October 3, 2007) (SR-NYSE-2007-
82) (modifications to methodology of pricing and executing orders in
the Odd-lot System); Securities Exchange Act Release No. 59613
(March 20, 2009), 74 FR 13486 (March 27, 2009) (SR-NYSE-2009-27)
(modification to pricing and execution methodology to execute odd-
lot portion of the PRL orders pursuant to pricing structure in NYSE
Rule 124(c) and (d).); Securities Exchange Act Release No. 60138
(June 18, 2009), 74 FR 30337 (June 25, 2009) (SR-NYSE-2009-45)
(Clarification of the pricing methodology for the odd-lot portion of
a PRL order and the systems capable of accepting PRL and Good 'Til
Cancelled Orders during the implementation of Exchange system
enhancements).
---------------------------------------------------------------------------

Proposed Amendments To Incorporate Odd-Lots and Odd-Lot Portion of PRL
Interest in the Round Lot Market
The Exchange is proposing to terminate the Odd-Lot System and
incorporate odd-lot interest and the odd-lot portion of PRL interest
into the round lot market thus enabling such interest to interact with
all other market interest and be priced in accordance with overall
supply and demand dynamics. Pursuant to the proposed rule change, odd-
lot interest and odd-lot portion of PRL interest will be accepted and
executed in the Display Book.
In order to incorporate interest for fewer than 100 shares into the
round lot market, the Exchange proposes that the new unit of trading
for all securities be 1 share.\11\ Although the new unit of trade will
be 1 share, the concepts of round lots and odd-lots remain for the
purposes of quoting as explained in more detail below.
---------------------------------------------------------------------------

\11\ See Proposed NYSE Rule 55 and 56. In addition, proposed
NYSE Rule 55 retains the ability of the Exchange to designate
securities to be quoted in less than 100 shares. Investors may
subscribe to an NYSE market data product to obtain information on
the securities designated to quote in less than 100 share
increments. Securities so designated pursuant to NYSE Rule 65 are to
``be dealt in as provided in Rule 64.'' Because the other provisions
of Rule 65 no longer apply when odd-lots are incorporated into the
round lot market, the Exchange further proposes to incorporate this
concept into the provisions of proposed NYSE Rule 55 and delete the
provision of NYSE Rule 65 in its entirety. The Exchange further
proposes to amend Supplementary Material subparagraph (2)(c) of NYSE
Rule 115A (``Orders at Opening or in Unusual Situations'') to change
the term ``unit of trading'' to one round lot.
---------------------------------------------------------------------------

There will no longer be a separate execution pricing structure for
odd-lot

[[Page 35857]]

interest and the odd-lot portion of PRL interest. Further, because the
trading of odd-lot interest and the odd-lot portion of PRL interest is
being incorporated in the round lot market the Exchange no longer needs
the DMM to act in the capacity of odd-lot dealer. The DMM will no
longer be the contra party to all odd-lot executions except for odd-lot
size quantity that pursuant to Exchange rules is to be executed in the
opening, re-opening and closing transactions that remain unpaired.\12\
The Exchange therefore seeks to rescind rules that govern odd-lot
dealers and the distinct pricing for odd-lot interest and the odd-lot
portion of PRL interest. Specifically, the Exchange proposes to rescind
the provisions of NYSE Rules 99 (``Round-Lot Transactions of Odd-Lot
Dealer and Broker''), 99 Former (``Round-Lot Transactions of Odd-Lot
Dealer and Broker''), 100 (Round-Lot Transactions of Odd-Lot Dealer or
Broker Affecting Odd-Lot Orders''), 101 (``Registration of Odd-lot
Dealers and Brokers'') and 124 (``Odd-Lot Orders'') and retain the rule
numbers as reserved. Similarly, the Exchange proposes to delete all
references to Odd-Lot Dealers in NYSE Rules 94 (``Designated Market
Markers or Odd-Lot Dealers Interest in Joint Accounts'') and 108
(``Limitation on Members' Bids and Offers'').
---------------------------------------------------------------------------

\12\ See Proposed NYSE Rule 104(e).
---------------------------------------------------------------------------

Odd-lot interest and the odd-lot portion of PRL interest will be
generally subject to all the provisions of Exchange rules that
heretofore applied only to interest executed in the round lot market
except as described herein. The Exchange therefore seeks to delete
current subparagraph (e) of NYSE Rule 13 under the Auto Ex Order and
make conforming changes to the lettering. The inclusion of odd-lot
interest and the odd-lot portion of PRL interest in the round lot
market will obviate the need for a specific provision authorizing
automatic execution for the round lot portion of a PRL order. In
addition, the Exchange proposes to delete the provisions of current
subparagraph (f) of NYSE Rule 14, which restricts non-regular way
settlement instructions solely to round lot and PRL interest. Floor
brokers will now be permitted to accept orders containing non-regular
way settlement instructions in odd-lot quantities because they will be
able to represent them in the round lot market. Current subparagraph
(g) of NYSE Rule 14 will be amended to become new subparagraph (f) of
proposed NYSE Rule 14.
Order Handling, Execution, Allocation
In order to incorporate odd-lot interest and the odd-lot portion of
PRL interest into the round lot market, the Exchange must amend rules
governing order handling, execution and allocation to reflect that odd-
lot quantities will not be displayed as the Exchange quotation and odd-
lot executions are not published to the Consolidated Tape.
The Exchange proposes to amend NYSE Rule 61 to delete: (i) The
requirement that odd-lot orders be executed via the Odd-lot System; and
(ii) references to rescinded rule text. The Exchange further proposes
to re-order the remaining substantive provisions of the rule and update
the rule text with currently recognized references, for example wordy
descriptions of PRL will be replaced with part of round lot or PRL.
Pursuant to the instant proposal Display Book will aggregate all
interest at each limit price, including odd-lot interest and the odd-
lot portion of PRL interest. Interest will be quoted if it is equal to
or greater than a round lot when the price point becomes the Exchange
best bid and offer (``Exchange BBO''). For example, Table 1 below
depicts the Exchange BBO as 200 shares bid at $20.05 and 200 shares
offered at $20.10. The quoted offer includes two non-reserve orders for
100 shares each; however, the quoted bid includes one non-reserve order
to buy for 100 shares and two odd-lot non-reserve orders for 50 shares
each. The 50 shares at the price point of $20.07 are not quoted because
it is less than a round lot.

Table 1
----------------------------------------------------------------------------------------------------------------
Displayable
Displayable interest available Quoted Bid price Offer price Quoted interest
interest interest available
----------------------------------------------------------------------------------------------------------------
0............................... 0 .............. $20.10 200 100, 100
50.............................. 0 $20.07 .............. 0 0
50, 50, 100..................... 200 20.05 .............. 0 0
----------------------------------------------------------------------------------------------------------------

Display Book will continue publishing the Exchange BBO which may
now include aggregated odd-lot interest and the odd-lot portion of PRL
interest. The Exchange therefore proposes to amend NYSE Rule 60 to
clarify that a bid or offer may also be the aggregation of odd-lot
interest and the odd-lot portion of PRL interest, the sum of which is
equal to or greater than a round lot.\13\ The Exchange BBO will still
be quoted in round lots.\14\ The Exchange proposes to include odd-lot
interest and the odd-lot portion of PRL interest in the Exchange BBO
only when such odd-lot interest may be aggregated with other interest
at the price point resulting in a sum that would be equal to or greater
than a round lot.\15\
---------------------------------------------------------------------------

\13\ NYSE Rule 60 currently provides that the terms ``bid'' or
``offer'' shall have the meaning given to them in section 242.602
(``Rule 602'') of Regulation National Market System (``Reg. NMS''),
17 CFR part 242. Reg. NMS, Rule 600 provides that: Bid or offer
means the bid price or the offer price communicated by a member of a
national securities exchange or member of a national securities
association to any broker or dealer, or to any customer, at which it
is willing to buy or sell one or more round lots of an NMS security,
as either principal or agent, but shall not include indications of
interest.
\14\ See Consolidated Tape Plan (``CTA Plan'') Second
Restatement of Plan Submitted to The Securities and Exchange
Commission Pursuant to Rule 11Aa3-1 Under the Securities Exchange
Act of 1934 at page 26 Section VI.(d)(iv). See also Securities
Exchange Act Release Nos. 10787 (May 10, 1974), 39 FR 17799 (order
approving CTA Plan). The most recent restatement of the CTA Plan was
in 1995. The CTA Plan, pursuant to which markets collect and
disseminate last sale price information for non-NASDAQ listed
securities, is a ``transaction reporting plan'' under Rule 601 under
the Act, 17 CFR 242.601, and a ``national market system plan'' under
Rule 608 under the Act, 17 CFR 242.608. See Securities Exchange Act
Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005).
\15\ See Proposed NYSE Rule 72(a).
---------------------------------------------------------------------------

Because odd-lot interest and the odd-lot portion of PRL interest
will be eligible for inclusion in the Exchange BBO such interest will
be considered ``displayable'' interest for the purposes of execution
and allocation pursuant to the provisions of NYSE Rule 72. Consistent
with the current operation of NYSE Rule 72, interest will not be
considered displayable when such interest is affirmatively designated
as excluded interest (e.g. reserve interest).
In addition, consistent with the current logic of priority and
parity,

[[Page 35858]]

incoming single odd-lot interest will never be eligible to be the
Priority Interest because it can never be the only interest quoted at
the price point.\16\ For example, Table 2 and 3 below depict the
Exchange BBO in XYZ security. Initially, the Exchange BBO is 200 shares
bid at $20.05 and 100 shares offered at $20.11. The quoted offer
includes two non-reserve orders for 50 shares each and the quoted bid
includes one non-reserve order to buy for 150 shares and two odd-lot
non-reserve orders for 50 shares each.\17\ There is no Priority
Interest in the Exchange BBO because none of the orders were the only
independently displayable interest quoted at the price point when it
became the Exchange BBO. Subsequently an order to sell 200 shares at
$20.10 is received. Table 3 shows the Exchange BBO is updated to
reflect 200 shares offered at $20.10 and 200 shares bid at $20.05. The
200 share order at $20.10 is Priority Interest because it was the only
independently displayable interest capable of being quoted at the price
point when the price point became the Exchange BBO.
---------------------------------------------------------------------------

\16\ See supra, note 11.
\17\ It is also important to note that in this example although
the total number of shares bid on the Exchange at the Exchange best
bid is 250 shares the quoted bid is 200 shares consistent with the
provisions of proposed NYSE Rule 55. See also supra, note 10.

Table 2
----------------------------------------------------------------------------------------------------------------
Displayable
Displayable interest available Quoted Bid price Offer price Quoted interest
interest interest available
----------------------------------------------------------------------------------------------------------------
0............................... 0 .............. $20.11 100 50, 50
0............................... 0 .............. 20.10 0 0
0............................... 0 $20.09 20.09 0 0
0............................... 0 20.08 .............. 0 0
10, 20, 30...................... 0 20.07 .............. 0 0
10, 10, 25, 50.................. 0 20.06 .............. 0 0
50, 50, 150..................... 200 20.05 .............. 0 0
----------------------------------------------------------------------------------------------------------------

Table 3
----------------------------------------------------------------------------------------------------------------
Displayable
Displayable interest available Quoted Bid price Offer price Quoted interest
interest interest available
----------------------------------------------------------------------------------------------------------------
0............................... 0 .............. $20.11 100 50, 50
0............................... 0 .............. 20.10 200 200
0............................... 0 $20.09 20.09 0 0
0............................... 0 20.08 .............. 0 0
10, 20, 30...................... 0 20.07 .............. 0 0
10, 10, 25, 50.................. 0 20.06 .............. 0 0
50, 50, 150..................... 200 20.05 .............. 0 0
----------------------------------------------------------------------------------------------------------------

For the same reason, single odd-lot interest at a price point may
not prevent single displayable round lot or PRL interest from
establishing itself as Priority Interest. When single round lot or PRL
interest joins odd-lot interest at a price point and the sum of the
odd-lot interest is not equal to a round lot, the single round lot or
PRL that is published as the Exchange BBO is considered the setting
interest and has established priority at that price point.\18\ For
example, Table 4 and 5 below depict the Exchange BBO in XYZ security.
Initially, the Exchange BBO is 200 shares bid at $20.05 and 100 shares
offered at $20.11. The quoted offer includes two non-reserve orders for
50 shares each and the quoted bid includes one non-reserve order to buy
for 100 shares and two odd-lot non-reserve orders for 50 shares each.
There is no Priority Interest in the Exchange BBO because none of the
displayable orders were the only independently displayable interest
quoted at the price point when the price point became the Exchange BBO.
Subsequently an order to sell 150 shares at $20.10 is received. Table 5
shows the Exchange BBO is updated to reflect 200 shares offered at
$20.10 and 200 shares bid at $20.05. The 150 share order at $20.10 is
entitled to be Priority Interest because it was the only independently
displayable interest capable of being quoted at the price point when it
became the Exchange BBO.
---------------------------------------------------------------------------

\18\ See Proposed NYSE Rule 72(a)(iv).

Table 4
----------------------------------------------------------------------------------------------------------------
Displayable
Displayable interest available Quoted Bid price Offer price Quoted interest
interest interest available
----------------------------------------------------------------------------------------------------------------
0............................... 0 .............. $20.11 100 50, 50
0............................... 0 .............. 20.10 0 50
0............................... 0 $20.09 20.09 0 0
0............................... 0 20.08 .............. 0 0
10, 20, 30...................... .............. 20.07 .............. 0 0
10, 10, 25, 50.................. .............. 20.06 .............. 0 0
50, 50, 100..................... 200 20.05 .............. 0 0
----------------------------------------------------------------------------------------------------------------

[[Page 35859]]

Table 5
----------------------------------------------------------------------------------------------------------------
Displayable
Displayable interest available Quoted Bid price Offer price Quoted interest
interest interest available
----------------------------------------------------------------------------------------------------------------
0............................... 0 .............. $20.11 100 50, 50
0............................... 0 .............. 20.10 200 50, 150
0............................... 0 $20.09 20.09 0 0
0............................... 0 20.08 .............. 0 0
10, 20, 30...................... 0 20.07 .............. 0 0
10, 10, 25, 50.................. 0 20.06 .............. 0 0
50, 50, 100..................... 200 20.05 .............. 0 0
----------------------------------------------------------------------------------------------------------------

PRL interest that is established as Priority Interest, establishes
priority for the full quantity of the PRL interest. For example, a 199
share buy limit order with no designated reserve quantity that is the
only interest available at the price point when it is quoted will
constitute 199 shares of Priority Interest although the Exchange Bid
will only quote 100 shares. Moreover, and consistent with the handling
of Priority Interest of round lot interest, PRL interest will retain
its Priority Interest status even if subsequent executions of the
original interest decrement the quantity of the shares remaining in the
interest to less than a round lot. Priority Interest will only lose its
priority status if it is cancelled, executed in full or routed away for
execution and returned unexecuted.\19\
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\19\ See Proposed NYSE Rule 72(b)(iv). Priority of the setting
interest is not retained on any portion of Priority Interest that
routes to an away market and is returned unexecuted unless, such
returned Priority Interest is greater than a round lot and there is
no other interest available at the price point or any other interest
available at the price point is less than a round lot.
---------------------------------------------------------------------------

Display Book as the matching engine for the Exchange will be
responsible for the execution of all incoming interest regardless of
the share size consistent with all applicable Exchange rules and
federal securities laws. All incoming interest will be eligible to be
executed against eligible contra side interest.
DMM CCS interest will be accessed to fill or partially fill \20\
incoming interest except, that Display Book will not access DMM CCS
interest to provide an execution for an incoming odd-lot order. The
Exchange proposes to amend NYSE Rule 1000 (d)(i) to clarify that DMM
CCS interest will be accessed in reaction to incoming contra side
interest that is equal to or greater than one round lot. As is the case
today, DMM CCS interest must be for a minimum of a round lot however, a
DMM will be allowed to provide interest in PRL quantities.\21\ For
example, today a DMM unit may be willing to provide 150 shares of
additional liquidity at the price point. Pursuant to current NYSE Rule
1000 the DMM unit is only allowed to provide 100 shares or must go past
its risk tolerance to provide 200 shares. Pursuant to the proposal DMM
CCS interest may be designated at the price point in any amount equal
to or greater than a round lot, (i.e. 150 shares in the previous
example).
---------------------------------------------------------------------------

\20\ CCS interest shall be accessed by Exchange systems to
partially fill Incoming Regulation NMS-compliant Immediate or Cancel
Orders, NYSE Immediate or Cancel Orders and any order whose partial
execution will result in a remaining unfilled quantity of less than
one round lot even if such CCS interest is not designated for
partial execution. See Proposed NYSE Rule 1000(e)(iii)(A)(4).
\21\ See Proposed NYSE Rule 1000(d)(ii).
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Executions will be printed to the Consolidated Tape in round lots
or PRL quantities. Transactions that result in executions of less than
a round lot will not: (i) Print to the Consolidated Tape; \22\ (ii) be
considered the last sale; and (iii) elect buy minus, sell plus or stop
interest for execution.\23\ The Exchange therefore proposes to amend
NYSE Rule 1004 to clarify that buy minus, sell plus and stop interest
are elected by executions that are reported to the Consolidated
Tape.\24\ Moreover, because liquidity replenishment points (``LRP'')
values are calculated based on the last sale on the Exchange, NYSE Rule
1000 will be amended to clarify that for automatic executions, Exchange
systems will recalculate LRP values after executions that are reported
to the Consolidated Tape.
---------------------------------------------------------------------------

\22\ See supra, note 11.
\23\ See Proposed NYSE Rules 13 and 61.
\24\ The Exchange further proposes to amend NYSE Rule 1004 to
remove legacy references to Percentage Orders, which are no longer
order types accepted on the Exchange.
---------------------------------------------------------------------------

Display Book will continue to allocate executed shares in round
lots; however, if the quantity of shares to be allocated to a specific
participant is for a quantity less than a round lot, the Display Book
will allocate to the participant the specific number of shares bid or
offered. The Exchange proposes to amend NYSE Rule 72(c)(viii) to state
that shares are allocated in round lots or the size of the order if
less than one round lot.
Below see specific trading examples demonstrating the execution
logic employing priority parity rules: \25\
---------------------------------------------------------------------------

\25\ See Proposed NYSE Rules 72(c).

(A) On each trading day, the allocation wheel for each security
is set to begin with the participant whose interest is entered or
retained first on a time basis. Thereafter, participants are added
to the wheel as their interest joins existing interest at a
particular price point. If a participant cancels his, her or its
interest and then rejoins, that participant joins as the last
position on the wheel at that time.

Parity Example 1

Assume there is interest of the Book Participant (representing
orders entered by two different public customers), three Floor
brokers and the DMM are bidding at the same price, with no
participant established as Priority Interest. An order to sell is
received by the Exchange. Exchange systems will divide the
allocations among the participants, listed in time order, as
follows:

Public Order 1 100 shares and Public Order 2 100
shares Book Participant
Floor Broker 1 Participant A
DMM Participant B
Floor Broker 2 Participant C
Floor Broker 3 Participant D

A market order for 300 shares to sell entered in Exchange
systems will allocate 100 shares to the Book Participant (Public
Order 1), Participant A and Participant B above.
Subsequently, another order to sell 300 shares at the same price is
received by Exchange systems. Those shares will be allocated to
Participant C, Participant D, and Book Participant (Public Order
2).
(B) The allocation wheel will move to the next participant when
an odd-lot allocation completely fills the interest of such
participant.

Parity Example 2

Assume there is interest of the Book Participant (representing
orders entered by two different public customers), three Floor
brokers and the DMM are bidding at the same price, with no
participant having priority. An order to sell is received by the
Exchange. Exchange systems will divide the allocations among the
participants as follows:

Public Order 1 100 shares and Public Order 2 100
shares Book Participant
Floor Broker 1 Participant A 50 shares
DMM Participant B 50 shares

[[Page 35860]]

Floor Broker 2 Participant C 300 shares
Floor Broker 3 Participant D 300 shares

Parity Example 3

Assume there is interest of the Book Participant (representing
orders entered by two different public customers), three Floor
brokers and the DMM are bidding at the same price, with no
participant having priority. An order to sell is received by the
Exchange. Exchange systems will divide the allocations among the
participants as follows:

Public Order 1 100 shares and Public Order 2 100
shares Book Participant
Floor Broker 1 Participant A 50 shares
DMM Participant B 75 shares
Floor Broker 2 Participant C 300 shares
Floor Broker 3 Participant D 300 shares

A market order for 200 shares to sell entered in Exchange
systems will allocate 100 shares to the Book Participant (Public
Order 1), Participant A will receive 50 shares, Participant
B above will receive 50 shares. Subsequently, another order to sell
300 shares at the same price is received by Exchange systems. The
allocation wheel will start with Participant B. Participant B is
allocated 25 shares, Participant C is allocated 100 shares,
Participant D is allocated 100 shares, and Book Participant (Public
Order 2) is allocated 75 shares. Exchange systems will
retain Book Participant (Public Order 2) as the participant
eligible to receive the next allocation at that price point.
(C) The allocation wheel will also move to the next participant
where Exchange systems execute remaining displayable odd-lot
interest prior to replenishing the displayable quantity of a
participant.

Parity Example 4

Assume the available bid interest on the Exchange consists of a
single Book Participant and two Floor brokers listed below in order
of their position on the allocation wheel None of the participants
have priority.

Floor Broker 1 Participant A--200 shares displayed and 4800 shares
reserve
Book Participant Public Order 1 Participant B--500 shares
displayed
Floor Broker 2 Participant C--500 shares displayed

An order to sell 350 shares is received by the Exchange.
Exchange systems will divide the allocations among the participants
as follows:

Participant A--150 shares
Book Participant--100 shares
Participant C--100 shares

Each participant receives a round lot allocation. The Allocation
wheel returns to Participant A as the first participant on the wheel
and allocates the remaining 50 shares. The allocation wheel remains
on Participant A. The remaining interest of the three participants
is as follows:

Floor Broker 1 Participant A--50 shares displayed and 4800 shares
reserve
Book Participant Public Order 1 Participant B 400 shares
displayed
Floor Broker 2 Participant C 400 shares displayed

Prior to the system replenishing the displayed quantity of
Participant A, an order to sell 100 shares is received by Exchange
systems. The system will allocate 50 shares to Participants A and B.
The next allocation at the price point will begin with Participant
B.
Miscellaneous Amendments
The Exchange proposes to amend the Section title for the grouped
NYSE Rules 99-114 to delete (i) legacy references to specialists and
registered traders; and (ii) the reference to Odd-lot Dealers. The
amended title will read, ``Designated Market Makers' (``DMMs'') and
Member Organizations' Dealings on the Floor''. The Exchange further
proposes to delete legacy rule text that refers to Intermarket Trading
System Plan and Pre-Opening Applications from subparagraph (d) of NYSE
Rule 115A (``Orders at Opening or in Unusual Situations''). The
Exchange also proposes to make conforming amendments to other Exchange
rules that refer to odd-lot systems and dealers, including Rules 92,
94, and 104.
In addition, the Exchange proposes to amend Rule 411 to delete the
requirement that when a person gives, either for his own account, for
various accounts in which he has an actual monetary interest, or for
accounts over which such person is exercising investment discretion,
buy or sell odd-lot orders that aggregate 100 shares or more, such odd-
lot orders must be consolidated into round lots. The Exchange proposes
to delete this requirement as moot now that Exchange systems will
receive odd-lot orders in the same system that handles round lot
orders.
Additional New Systemic Capabilities
The system changes required to decommission the Odd-lot System will
also enable the Exchange to expand its price fields. Previous
constraints on the number of characters that could be included in a
price field required a ten cent ($.10) minimum price variation for
quoting and order entry in securities priced at or greater than
$100,000. As a result of the new systemic capability to include
additional characters in the price fields, the Exchange proposes to
amend NYSE Rule 62 (``Variations'') to remove the requirement that $.10
be the minimum variation for securities priced at or greater than
$100,000. Specifically, the Exchange proposes to amend Supplementary
Material .10 of NYSE Rule 62 to state that the minimum price variation
for quoting and entry of interest in securities priced at or greater
than a $1.00 will be a penny (``$.01'').
In addition, the incorporation of odd-lot interest and the odd-lot
portion of PRL interest into Display Book will provide Exchange market
data systems access to odd-lot volumes. Market participants will
therefore benefit from additional transparency because the depth of
book information published by the Exchange via its market data systems
will now include those quantities. NYSE OpenBook[supreg] will publish
in shares the total volume of interest available at each price
point.\26\
---------------------------------------------------------------------------

\26\ NYSE OpenBook shows the aggregate limit-order volume at
every bid and offer price, thus responding to customer demand for
more depth-of-market data and raising the NYSE market to an even
greater level of transparency.
---------------------------------------------------------------------------

Implementation of Proposed Amendments \27\
---------------------------------------------------------------------------

\27\ See e-mail from Clare F. Saperstein, Managing Director,
NYSE Regulation, Inc., to Nathan Saunders, Special Counsel, and Gary
Rubin, Attorney, Commission, dated June 14, 2010.
---------------------------------------------------------------------------

Subject to Commission approval, the Exchange intends to
progressively implement these systemic changes on a security by
security basis as it gains experience with the new technology until it
is operative in all securities traded on the Floor. During the
implementation, the Exchange will identify on its Web site which
securities have been transitioned to the new system. In addition, the
Exchange will provide information to its constituents about any
modifications to the start or end date related to the implementation of
such proposal via its Trader Update Notices that are sent via e-mail to
subscribers and posted on the Exchange Web site.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \28\ that an Exchange have rules that
are designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system and, in general, to protect
investors and the public interest. The instant proposal is in keeping
with these principles in that it removes timing restrictions on the
execution of odd-lot interest and the odd-lot portion of PRL interest
by allowing such interest, if marketable to be immediately and
automatically executed. It further promotes the interaction of such
interest

[[Page 35861]]

with all other market interest and enables it to be priced in
accordance with supply and demand dynamics.
---------------------------------------------------------------------------

\28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others

No written comments were solicited or received with respect to the
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.

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 Exchange Act. Comments may be submitted
by any of the following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSE-2010-43 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.

All submissions should refer to File Number SR-NYSE-2010-43. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSE-2010-43 and should be
submitted on or before July 14, 2010.
---------------------------------------------------------------------------

\29\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-15132 Filed 6-22-10; 8:45 am]
BILLING CODE 8010-01-P

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