Federal Register / Vol. 74, No. 17 / Wednesday, January 28, 2009 / Notices 5009 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 58969 

(November 24, 2008), 73 FR 71050 (‘‘Notice’’). 

4NYSE’s regular trading hours are 9:30 a.m. 

Eastern Time (‘‘ET’’) to 4 p.m. ET. If the Exchange 

closes for business at a time other than 4:00 p.m., 

NYBX will close at the same time. See proposed 

NYSE Rule 1600(a)(2). 

5See e-mail from Bob Hill, Senior Vice President, 

NYSE Euronext, to Michael Gaw, Assistant Director, 

Division of Trading and Markets, Commission 

(January 21, 2009). 

6See proposed NYSE Rule 1600(g)(1). 

7See Securities Exchange Act Release No. 59281 

(January 22, 2009) (SR–NYSE–2008–120). 

8See proposed NYSE Rules 1600(c)(2) and 

1600(c)(3)(A). 

9See NYSE Rule 62 (describing the minimum 

price variation). 

10See proposed NYSE Rule 1600(d)(2)(A). 

11See proposed NYSE Rule 1600(d)(2)(B). 

12See proposed NYSE Rule 1600(d)(3)–(4). 

13See proposed NYSE Rule 1600(d)(2)(C). 

14See proposed NYSE Rule 1600(c)(4). 

15See proposed NYSE Rules 1600(b)(2)(E) and 

1600(c)(3)(B)(ii). 

16 17 CFR 242.611. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59282; File No. SR–NYSE– 

2008–119] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing of Amendment No. 1 and Order 

Granting Accelerated Approval to a 

Proposed Rule Change, as Modified by 

Amendment No. 1, To Establish 

Trading Rules for the New York Block 

Exchange 

January 22, 2009. 

I. Introduction 

On November 13, 2008, the New York 

Stock Exchange LLC (‘‘NYSE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Exchange Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to adopt Exchange Rule 1600 

governing the New York Block 

Exchange (‘‘NYBX’’), an electronic 

facility for the posting and trading of 

undisplayed orders. The proposed rule 

change was published for comment in 

the Federal Register on November 24, 

2008.3 The Exchange filed Amendment 

No. 1 on January 22, 2009. The 

Commission received no comments on 

the proposal. This notice and order 

provides notice of filing of Amendment 

No. 1 and grants accelerated approval to 

the proposed rule change, as modified 

by Amendment No. 1. 

II. Background 

A. General 

The NYBX facility will offer NYSE 

members and member organizations a 

means for posting and executing 

undisplayed orders. It is designed to 

facilitate trading in block-sized orders, 

although orders submitted to NYBX can 

be as small as one round lot. These 

orders would not be displayed to the 

public or NYSE members. Only NYSElisted securities will trade in NYBX. All 

NYSE members and member 

organizations are automatically eligible 

to access NYBX, although they must 

complete a connectivity authorization 

process. A non-member who wishes to 

access the NYBX facility may do so as 

a ‘‘Sponsored Participant’’ pursuant to 

NYSE Rule 123B. 

Trading in the facility will occur only 

when trading is occurring on the 

Exchange.4 However, orders submitted 

to the facility will not participate in any 

openings, re-openings, or closings on 

the Exchange, or in any trades resulting 

from a liquidity refreshment point or a 

gap quote situation.5 Trading on the 

facility will be halted or suspended 

whenever the NYSE halts or suspends 

trading in a particular security.6

In a separate action today, the 

Commission is also approving a 

proposed rule change by NYSE relating 

to the corporate governance of the 

NYBX facility.7

B. Order Entry and Order Parameters 

Users may transmit orders to NYBX 

by means of an electronic interface. The 

facility can be accessed through an 

electronic FIX application or an 

Internet-based, password-protected 

order-entry application. Orders can be 

entered, canceled, and replaced from 

3:30 a.m. ET until the close of the 

regular hours of the Exchange on any 

day that the Exchange is open for 

business. The facility will support a 

variety of order types—including limit, 

midpoint, and pegging orders—but not 

market orders.8 An order may be 

pegged, for example, to the national best 

bid or best offer (‘‘NBBO’’) or to the 

NBBO plus or minus the Exchange’s 

minimum price variation.9 The facility 

will accept day orders, which expire at 

the end of the regular trading session on 

the day of entry, and ‘‘Good til a 

Specified Time’’ orders, which are 

available for execution until a specified 

time. Unless otherwise specified, the 

facility will treat all incoming orders as 

day orders. 

For an order priced equal to or greater 

than $1.00, the minimum quoting 

increment in the facility is one penny 

($0.01).10 For an order priced less than 

$1.00, the minimum quoting increment 

is one-tenth of a penny ($0.001).11 When 

there is an odd-increment spread, a 

midpoint execution on the facility will 

occur in a smaller increment ($x.xx5 if 

above $1.00, $0.xxx5 if below $1.00).12

The facility will reject any pegging order 

priced below $1.00.13

The facility will accept orders with 

round lots and partial round lots.14

Orders that are initially submitted with 

an odd-lot size would be rejected. 

However, if the execution of an NYBX 

order results in an odd-lot remainder, 

that remainder would not be canceled 

and would continue to be processed by 

the facility. 

Orders submitted to the NYBX facility 

may include a ‘‘Minimum Trading 

Volume’’ (‘‘MTV’’) parameter, which is 

designed to prevent an execution unless 

the resulting fill would be of at least the 

designated size.15 The facility would not 

initiate the execution of an order unless 

the MTV is met at the time the order is 

evaluated for execution. If no MTV is 

designated, an order would be treated as 

if the MTV is zero. The facility would 

act upon market information available 

to it at the time an order is entered into 

the facility, taking a ‘‘snapshot’’ of the 

market. Contraside orders resting in the 

Display Book (whether displayed or 

non-displayed) and contraside orders in 

the facility would automatically be 

considered for MTV purposes. In 

addition, the system default would be to 

include protected quotations of 

automated trading centers for MTV 

purposes, although an MTV could not 

be met solely by protected bids or offers. 

A user could elect to have protected 

bids and offers of automated trading 

centers excluded for MTV purposes. 

Therefore, if an NYBX order is 

marketable against a protected bid or 

offer displayed by an away market but 

not against any order in the facility or 

on the Display Book, the facility would 

not route the order to the away market 

to seek an execution (even if the NYBX 

order’s MTV were met by the size of the 

protected bid or offer). Regardless of an 

order’s MTV designation, the facility 

would always route to away markets as 

necessary to comply with Rule 611 of 

Regulation NMS.16 The facility would 

not consider for MTV purposes any 

marketable interest on an away market 

that is priced inferior to that market’s 

protected quotation. 

The MTV designation does not 

guarantee that a user would receive the 

full size of the MTV from any resulting 

execution(s). For example, when the 

MTV of an NYBX order is met, the 

facility might route parts of that order to 

the Display Book or to one or more away 

markets for execution. Those contraside 


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17See proposed NYSE Rule 1600(d)(1)(A). 

18The facility would route orders to the Display 

Book or to away markets as necessary via the NYSE 

Routing Broker. See NYSE Rule 17(b) (describing 

operation of the Routing Broker). 

19 If the prices of two NYBX orders are crossed, 

the execution will occur at the price of the order 

that is nearest to or at the midpoint of the NBBO. 

See proposed NYSE Rule 1600(d)(1)(C)(vi). 

20 In addition, as noted above, NYBX orders will 

not participate in any openings, closings, or reopenings, or in any trades resulting from a liquidity 

refreshment point or a gap quote situation. NYSE 

has represented that it will disclose to users of the 

NYBX facility the implied conditions of NYBX 

orders. See Amendment No. 1. 

21See proposed NYSE Rules 1600(d)(1)(C) and 

1600(d)(1)(D). 

22Similarly, a pegging order that is repriced with 

a change in the NBBO also would lose its original 

priority and go behind previously submitted orders 

in the NYBX queue at the new price. See proposed 

NYSE Rule 1600(d)(1)(A)(ii). 

23See proposed NYSE Rule 1600(e)(1). NYBX 

executions will be compared through the Regional 

Interface Organization Online process (‘‘RIO 

Online’’). RIO Online is NYSE Arca’s internal 

processing interface that sends order execution 

information to DTCC. RIO Online gathers the trades 

that are executed on any given day, places the 

trades into the appropriate message format and 

sends them to DTCC. RIO Online provides a record 

of all trades that were sent to DTCC. RIO Online is 

also used to manage any approved trade 

corrections. 

24See proposed NYSE Rule 1600(e)(2)–(3). 

25See proposed NYSE Rule 1600(i). 

26See 15 U.S.C. 78q. 

27 17 CFR 240.17a–3, 240.17a–4, and 240.17a–6. 

28 17 CFR 240.17a–3(a)(1) and 240.17a–4(a). 

29See proposed NYSE Rule 1600(h). 

orders might be executed or canceled 

before the NYBX order can access them. 

C. Priority, Execution, and Relationship 

to the Display Book 

All orders entered into the NYBX 

facility are prioritized in order of price, 

then time.17 In addition, execution is 

conditioned on all applicable MTVs 

being met. 

The NYBX facility and the Display 

Book, the Exchange’s principal facility 

for the trading of equity securities, are 

separate electronic systems. When it 

receives an order, the NYBX facility will 

check for contraside interest on the 

facility, the Display Book (both 

displayed and undisplayed orders), and 

away markets to ascertain whether to 

attempt to execute the order.18 Where an 

NYBX order is marketable against 

eligible contraside liquidity and its 

MTV is met, the facility will attempt to 

execute that order against the eligible 

contraside liquidity at the order’s limit 

price or better. If there is eligible 

contraside liquidity in the facility at a 

better price than any liquidity on the 

Display Book, the order will attempt to 

execute in the facility until it is 

exhausted, expired, or canceled back to 

the user pursuant to its time-in-force 

conditions, or until that contraside 

liquidity in the facility is exhausted.19 If 

eligible contraside liquidity is available 

on the Display Book, an order would be 

sent to the Display Book to attempt to 

execute against that liquidity. NYBX 

orders that are routed to the Display 

Book will be prioritized and executed 

pursuant to NYSE Rule 72. 

In all cases, the facility would not 

effect an execution except as permitted 

by Rule 611 of Regulation NMS. Thus, 

if the execution of an NYBX order 

would trade through a protected bid or 

offer of an automated trading center, the 

facility would route the applicable size 

of the order to the automated trading 

center to attempt to execute against that 

protected bid or offer. 

If an order submitted to the facility 

cannot immediately be executed, it 

would remain on the NYBX book 

pursuant to its time-in-force conditions. 

As new orders are submitted to the 

facility or the Display Book, or the 

NBBO changes, the NYBX facility will 

re-evaluate whether the booked order is 

marketable and whether any applicable 

MTV is met. If so, the facility would 

attempt to execute the order, routing 

parts of the order to the Display Book 

or to away markets as necessary. 

Orders in the Display Book, whether 

displayed or undisplayed, have priority 

over orders in the facility at the same 

price. Therefore, no trade could take 

place in the facility until all equal- or 

better-priced orders in the Display Book 

had been executed (or canceled), subject 

to any applicable MTV being met. 

Although, as noted above, the NYBX 

facility will monitor orders resting in 

the Display Book and route orders to the 

Display Book as appropriate, the 

Display Book will not monitor the 

undisplayed orders resting in the NYBX 

facility. Thus, marketable orders entered 

into the Display Book would execute 

without regard to any undisplayed 

orders that may be resting in the NYBX 

facility. In effect, submitting an order to 

the NYBX facility is equivalent to 

submitting an undisplayed order to the 

Exchange with the conditions that it not 

execute against any market or 

marketable limit orders submitted to the 

Display Book, and that it not execute 

unless any applicable MTV is met.20

Where an NYBX order executes in 

part but is not exhausted, the unfilled 

portion of the order (the ‘‘residual 

order’’) would be held in the facility 

where it would attempt to execute 

against later-submitted eligible 

contraside liquidity until the residual 

order is exhausted, expired, or 

canceled.21 If the residual order is larger 

than the original MTV of the order, the 

original MTV would remain on the 

order. If the residual order is smaller 

than the original MTV, the facility 

would modify the MTV to equal the size 

of the residual order. A residual order 

maintains its original time stamp unless 

it is modified. If a user modifies the 

price, size, side, MTV, or time-in-force 

condition of a residual order, it would 

be considered a newly submitted order 

and receive a new time stamp.22

D. Clearance and Settlement 

Details of each trade occurring in the 

facility will be automatically compared 

and matched by the Exchange, and 

locked-in trades will be submitted to the 

National Securities Clearing Corporation 

(‘‘NSCC’’) for clearance and 

settlement.23 NYBX transaction reports 

will not reveal contraparty and clearing 

firm identities, except under the 

following circumstances: (1) for 

regulatory purposes or to comply with 

an order of a court or arbitrator; and (2) 

if NSCC will not act on behalf of a 

member or its clearing firm.24 The trade 

reports that NSCC will receive from the 

facility will contain the identities of the 

parties to the trade—thus enabling 

NSCC to conduct its risk management 

functions and settle trades between the 

appropriate parties—but will contain an 

indicator noting that the trade is 

anonymous. On the contract sheets that 

NSCC issues to its participants, NSCC 

will substitute ‘‘ANON’’ for the acronym 

of each counterparty. 

E. Recordkeeping 

Users of the facility will be required 

to comply with all relevant rules of the 

Exchange and Commission in relation to 

reports and records of transactions.25

Such rules include, but are not limited 

to, NYSE Rules 132B (Order Tracking 

Requirements), 342 (Supervision), and 

440 (Books and Records), and Section 

17 of the Exchange Act 26 and Rules 

17a–3, 17a–4, and 17a–6 thereunder.27

The Exchange will retain the identity of 

each user that executes an anonymous 

transaction on the facility, thus enabling 

the user to satisfy its recordkeeping 

obligations under Exchange Act Rules 

17a–3(a)(1) and 17a–4(a).28

F. Limitations on the Use of the Facility 

Designated Market Maker (‘‘DMMs’’) 

and Registered Competitive Market 

Makers (‘‘RCMMs’’) on the floor of the 

Exchange may not submit orders to the 

NYBX facility.29 The off-floor unit of a 

DMM or RMM may submit orders to the 

facility if it has policies and procedures 

that are designed to prohibit 

inappropriate sharing of information 


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30See proposed NYSE Rule 1600(h)(A). 

31 15 U.S.C. 78k(a). Section 11(a) provides that a 

member of an exchange may not trade for its own 

account on that exchange unless an exemption 

applies. 

32See proposed NYSE Rule 1600(h)(B). 

33See proposed NYSE Rule 1600(f). 

34See NYSE Rule 1500. NYBX orders will not 

interact with MatchPoint orders, and vice versa. 

35 In approving the proposed rule change, the 

Commission has considered its impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

36 15 U.S.C. 78f(b)(1) 

37 15 U.S.C. 78f(b)(5). 38 15 U.S.C. 78k–1(a)(1)(C). 

between the floor personnel and the offfloor personnel.30

In addition, NYSE has proposed 

certain restrictions on entering orders 

into the facility designed to promote 

compliance with Section 11(a) of the 

Exchange Act.31 A member may not 

enter an order into the facility from the 

floor of the Exchange when such order 

is for its own account, the account of an 

associated person, or an account over 

which it or an associated person 

exercises investment discretion.32 Also, 

a member on the floor may not have an 

order entered into the facility by 

sending it to an off-floor facility for 

entry. However, a member may submit 

a proprietary or customer order to the 

facility from off the floor of the 

Exchange. 

G. NYBX-Only Trades 

A trade that results from the 

execution of two NYBX orders (an 

‘‘NYBX-Only Trade’’) will print with a 

special modifier (‘‘N.X’’) to identify it as 

occurring outside the Display Book.33

The same ‘‘N.X’’ modifier is also used 

to identify executions in MatchPoint, 

which is a separate trading facility of 

the Exchange that matches nondisplayed orders.34 A trade that results 

from an NYBX order that is routed to 

the Display Book and executes against 

one or more Display Book orders will 

print as a regular-way NYSE trade 

(‘‘N’’). 

The Exchange proposes to amend 

certain of its rules that apply to or take 

account of executions on the Display 

Book by carving out NYBX-Only Trades 

from their scope. Thus, for example, a 

trade effected in the NYBX facility 

would not be deemed the ‘‘last different 

round lot price’’ for purposes of NYSE 

Rule 100, which relates to executions of 

odd-lot orders. NYSE believes that a 

DMM, who takes the contraside for all 

executions of odd-lot orders in its 

securities, could be inappropriately 

disadvantaged if it were required to 

execute at last different round lot prices 

that included the prices of NYBX-Only 

Trades. In this situation, the DMM 

would be bound as the contraside of 

odd-lot orders up to the size of the print 

in the NYBX facility even though it 

would have no knowledge of the size of 

the orders that made up the print. NYSE 

also has argued that, because a DMM 

has market re-entry obligations for 

stabilization purposes, such obligations 

should not apply to NYBX-Only Trades, 

as the DMM will have no information 

about orders within NYBX. 

H. Amendment No. 1 

In Amendment No. 1, the Exchange 

deleted the proposed carve-out relating 

to NYSE Rule 15A (Order Protection 

Rule). The Exchange believes that this 

carve-out is ‘‘not necessary to ensure the 

effective operation of the NYBX 

Facility.’’ In addition, the Exchange 

represented that it would publish an 

informational memorandum for its 

members describing the NYBX facility 

and how orders entered into NYBX will 

interact with orders entered into the 

Display Book. The memorandum will 

describe, among other things, the 

implied trading conditions of the NYBX 

trading platform. Finally, the Exchange 

in Amendment No. 1 made certain 

technical, non-substantive changes to 

the proposed rule text. The text of 

Amendment No. 1 is available from the 

Exchange’s Web site (http:// 

www.nyx.com), the Exchange’s principal 

office, and the Commission’s Public 

Reference Room. 

III. Discussion 

A. Generally 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Exchange Act and the rules and 

regulations thereunder applicable to a 

national securities exchange.35 In 

particular, the Commission believes that 

the proposed rule change is consistent 

with Section 6(b)(1) of the Exchange 

Act,36 which requires a national 

securities exchange, among other things, 

to be so organized to carry out the 

purposes of the Exchange Act. The 

Commission further believes that the 

proposed rule change is consistent with 

Section 6(b)(5) of the Exchange Act,37

which requires, among other things, that 

an exchange have rules designed to 

promote just and equitable principles of 

trade; to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities; to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system; and, in 

general, to protect investors and the 

public interest. Moreover, the 

Commission believes that the proposed 

rule change is consistent with Section 

11A(a)(1)(C) of the Exchange Act,38 in 

which Congress found that it is in the 

public interest and appropriate for the 

protection of investors and the 

maintenance of fair and orderly markets 

to assure, among other things, 

economically efficient execution of 

securities transactions and the 

practicability of brokers executing 

investors’ orders in the best market. The 

ability to post undisplayed interest to 

the NYBX facility will provide 

additional opportunities for block-sized 

orders, in particular, to interact with 

both displayed interest (on the Display 

Book and away markets) and 

undisplayed interest (in the facility and 

the Display Book). The MTV 

designation permits order senders to 

limit information leakage and the 

resulting market impact. A user 

selecting a large MTV could choose to 

execute only when significant 

contraside interest can be identified by 

the NYBX facility. A user selecting a 

smaller MTV could choose to obtain a 

series of more rapid partial executions 

while accepting a greater risk that 

market participants could infer the 

existence of the user’s order before 

achieving a meaningful amount of 

executed volume. This functionality 

appears reasonably designed to give 

brokers additional opportunities to 

execute investors’ orders in the best 

market and to promote the efficient 

execution of securities transactions, 

particularly transactions of block size. 

B. Relationship of NYBX Facility to the 

Exchange 

The Commission believes that the 

Exchange’s rules of execution priority as 

they relate to the interaction of orders 

between the NYBX facility and the 

Display Book, the Exchange’s main 

trading facility, are consistent with the 

Exchange Act. The Commission notes, 

however, that the two facilities do not 

constitute a completely integrated 

liquidity pool. For example, orders 

submitted to the NYBX facility would 

not participate in any openings, 

closings, or re-openings on the 

Exchange, or in any trades resulting 

from a liquidity refreshment point or 

gap quote. Furthermore, by submitting 

an order to the NYBX facility rather 

than to the Display Book, the order 

sender is electing not to interact with 

certain marketable order flow that may 

be submitted to the Display Book. For 

example, while an order resting in the 

NYBX facility could interact with 


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39See NYSE Information Memo 2001–33 (October 

8, 2001); Securities Exchange Act Release No. 44139 

(March 30, 2001), 66 FR 18339 (April 6, 2001) (SR– 

NYSE–94–34). 

40 15 U.S.C. 78k(a). 

41 17 CFR 240.11a2–2(T). 

42See Securities Exchange Act Release No. 57058 

(December 28, 2007), 73 FR 903 (January 4, 2008) 

(approving MatchPoint) (‘‘MatchPoint Order’’) at 

908, note 54. See Securities Exchange Act Release 

Nos. 54552 (September 29, 2006), 71 FR 59546 

(October 10, 2006) (order approving proposed rule 

change of the American Stock Exchange (‘‘Amex’’) 

to establish new hybrid market); 29237 (May 31, 

1991) (regarding NYSE’s Off-Hours Trading 

Facility); and 15533 (January 29, 1979) (‘‘1979 

Release’’), 44 FR 6084 (January 31, 1979) (regarding 

the Amex Post Execution Reporting System, the 

Amex Switching System, the Intermarket Trading 

System, the Multiple Dealer Trading Facility of the 

Cincinnati Stock Exchange, the PCX’s 

Communications and Execution System, and the 

Phlx’s Automated Communications and Execution 

System). See also letter from Paula R. Jensen, 

Deputy Chief Counsel, Division of Market 

Regulation, Commission, to Angelo Evangelou, 

Senior Attorney, Chicago Board Options Exchange, 

(‘‘CBOE’’), (March 31, 2003) (regarding CBOEdirect 

system); letter from Paula R. Jenson, Deputy Chief 

Counsel, Division of Market Regulation, 

Commission, to Jeffrey P. Burns, Assistant General 

Counsel, Amex (July 9, 2002) (regarding Amex’s 

auto-ex system for options); letter from Paula R. 

Jenson, Deputy Chief Counsel, Division of Market 

Regulation, Commission, to Richard S. Rudolph, 

Counsel, Philadelphia Stock Exchange (‘‘Phlx’’) 

(April 15, 2002) (regarding Phlx’s AUTOM System 

and its automatic execution feature AUTO–X); letter 

from Paula R. Jenson, Deputy Chief Counsel, 

Division of Market Regulation, Commission, to 

Kathryn L. Beck, Senior Vice President, Special 

Counsel and Antitrust Compliance Officer, Pacific 

Exchange (October 25, 2001) (regarding Archipelago 

Exchange); letter from Brandon Becker, Director, 

Division of Market Regulation, Commission, to 

George T. Simon, Foley & Lardner (November 30, 

1994) (regarding Chicago Match). 43See Notice, supra note 3, 73 FR at 71061. The 

Commission notes that proposed NYSE Rule 

1600(h) (Limitations on the Use of the New York 

Block Exchange) will prohibit a member from 

entering an order into the NYBX facility from the 

floor of the Exchange when such order is for a 

Covered Account. Further, the rule also prohibits a 

member from having such order entered into the 

facility by sending it to an off-floor facility for entry. 

A member with authorized access to the facility 

may enter only customer orders into the NYBX 

facility from the floor of the Exchange. 

resting orders in the Display Book, it 

could not interact with marketable 

orders entered into the Display Book or 

participate in openings, closings, reopenings, and certain other discrete 

events. Orders that are marketable 

against interest in the Display Book 

when they are submitted would interact 

only with contraside interest in the 

Display Book (or be routed to access one 

or more protected quotations). 

The Commission believes that the 

Exchange’s manner of operating the 

NYBX facility in relation to the Display 

Book is consistent with the Exchange 

Act. The NYBX facility appears 

reasonably designed to permit members’ 

orders, particularly large ones, to 

interact with each other and with 

certain orders in the Display Book, 

while preserving members’ ability to 

limit information leakage and 

consequent market impact with respect 

to such orders. The Exchange would 

route these orders to away markets as 

necessary to avoid trade-throughs of 

protected quotations. The Exchange also 

would route these orders to interact 

with any displayed or undisplayed 

interest resting in the Display Book so 

long as any applicable MTV is met. 

Although orders entered into the NYBX 

facility would not interact with 

marketable orders entered into the 

Display Book, participate in certain 

discrete NYSE trading events, or execute 

unless any applicable MTV is met, the 

Commission has previously approved 

the use of discretionary orders that are 

undisplayed and that elect to interact 

only with certain kinds of order flow or 

if certain conditions are met. The 

Commission concludes, therefore, that it 

is consistent with the Exchange Act for 

the Exchange to offer its members this 

discretion over the display and 

execution of orders submitted to the 

NYBX facility. 

The Exchange also proposes to amend 

certain NYSE rules to exclude 

transactions that occur solely within the 

NYBX facility from the operation of the 

traditional NYSE market. For example, 

certain responsibilities of the 

Exchange’s DMMs and RCMMs are 

keyed off the last sale on the Exchange. 

Under this proposal, an NYBX-Only 

Trade would not be deemed a last sale 

for purposes of those rules. In addition, 

stop orders and stop-stock provisions of 

the Exchange rules would not be 

triggered by NYSE-Only Trades. The 

Commission does not believe that the 

Exchange Act requires NYSE’s rules to 

treat Display Book trades and NYBXOnly Trades the same for all purposes, 

and that excluding NYBX-Only Trades 

as triggering events for certain Exchange 

rules is broadly within the Exchange’s 

discretion. The Commission concludes, 

therefore, that these exclusions for 

NYBX-Only Trades are consistent with 

the Exchange Act. 

C. Trading Ahead of Customer Orders 

Because orders in the NYBX facility 

could be executed at the midpoint of the 

NBBO, it is possible that an NYSE 

member would trade ahead of a held 

customer order by less than $0.01 (i.e., 

$ 0.005). If an NYBX order executes at 

the midpoint of the NBBO and results 

in a member or member organization’s 

trading ahead of a held customer order 

at the same price, NYSE Rule 92 

(Limitations on Member’s Trading 

Because of Customers’ Orders) may be 

implicated. Rule 92(a) generally restricts 

a member or member organization from 

entering a proprietary order while in 

possession of a customer order. Rule 

92(b) through (d) provides several 

exceptions to the general restrictions of 

Rule 92(a).39 The Exchange has stated 

that all users will be expected to comply 

with Rule 92(a) when trading on the 

NYBX facility unless such trading falls 

within an applicable exception in NYSE 

Rule 92(b) through (d). 

D. Section 11(a) of the Exchange Act 

Section 11(a) of the Exchange Act 

prohibits a member of a national 

securities exchange from effecting a 

transaction on that exchange for its own 

account, the account of an associated 

person, or an account over which it or 

its associated persons exercises 

discretion (each a ‘‘Covered Account’’) 

unless an exemption applies.40 Rule 

11a2–2(T) under the Exchange Act,41

known as the ‘‘effect versus execute’’ 

rule, provides exchange members with 

one exemption from the Section 11(a) 

prohibition. To comply with Rule 11a2– 

2(T)’s conditions, a member: (1) Must 

transmit the order from off the exchange 

floor; (2) may not participate in the 

execution of the transaction once it has 

been transmitted to the member 

performing the execution; (3) may not 

be affiliated with the executing member; 

and (4) with respect to an account over 

which the member has investment 

discretion, neither the member not its 

associated person may retain any 

compensation in connection with 

effecting the transaction without express 

written consent from the person 

authorized to transact business for the 

account in accordance with the rule. 

The Exchange believes that orders 

entered into the NYBX facility from off 

the floor will comply with these 

provisions of Rule 11a2–2(T). 

Off-Floor Transmission. The 

requirement in Rule 11a2–2(T) for 

orders to be transmitted from off the 

exchange floor reflects Congress’ intent 

that Section 11(a) should operate to put 

member money managers and nonmember money managers on the same 

footing for purposes of their transactions 

for Covered Accounts. In considering 

other automated systems, the 

Commission and the staff have stated 

that the off-floor transmission 

requirement would be met if a Covered 

Account order is transmitted from off 

the floor directly to the exchange floor 

by electronic means.42 Orders will be 

electronically entered into the NYBX 

facility from on and off the floor of the 

Exchange; however, a member is not 

permitted to enter an order into the 

NYBX facility from the floor of the 

Exchange when such order is for a 

Covered Account.43 Similarly, a 


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44See Securities Exchange Act Release No. 44983 

(October 25, 2001), 66 FR 55225 (November 1, 2001) 

(approving ArcaEx as the equities trading facility of 

PCX Equities). See also MatchPoint Order, supra 

note 42, 73 FR at 908 note 56 and accompanying 

text. 

45See MatchPoint Order, supra note 42, 73 FR at 

908. See also Securities Exchange Act Release No. 

14563 (March 14, 1978), 43 FR 11542 (March 17, 

1978); see also Securities Exchange Act Release No. 

53128 (January 13, 2006), 71 FR 3550 (January 23, 

2006) (order approving Nasdaq Stock Market LLC’s 

registration as a national securities exchange) 

(‘‘Nasdaq Exchange Order’’). 

46See 1979 Release, supra note 42; see also, e.g., 

Securities Exchange Act Release Nos. 54422 

(September 11, 2006), 71 FR 54537 (September 15, 

2006) (order approving proposed rule change of 

CBOE to establish a screen based trading system for 

non-option securities); 51666 (May 9, 2005), 70 FR 

25631, 25633 (May 13, 2005) (order approving 

proposed rule change by International Securities 

Exchange to establish facilitation, block order, and 

solicited order mechanisms). 

47 In considering the operation of an automated 

execution system operated by an exchange, the 

Commission has noted that, while there is no 

independent executing exchange member, the 

execution of an order is automatic once it has been 

transmitted into the system. The Commission has 

stated that, because the design of these systems 

ensures that members do not possess any special or 

unique trading advantages in handling their orders 

after transmitting them to the exchange, executions 

obtained through these systems satisfy the 

independent execution requirement of Rule 11a2– 

2(T). See 1979 Release, supra note 42; see also 

MatchPoint Order supra note 42, 73 FR at 908, note 

59 and accompanying text; Securities Exchange Act 

Release No. 49068 (January 13, 2004), 69 FR 2775 

(January 20, 2004) (order approving the Boston 

Options Exchange as an options trading facility of 

the Boston Stock Exchange). 

48See 1979 Release, supra note 42; see also e.g., 

MatchPoint Order, supra note 42; Securities 

Exchange Act Release No. 54238 (July 28, 2005), 71 

FR 44758 (August 7, 2006) (order approving 

proposed rule change of NYSE Arca to establish the 

OX trading platform); Nasdaq Exchange Order, 

supra note 45. 49 15 U.S.C. 78s(b)(2). 

member on the floor may not enter into 

the facility an order sent to it by an 

affiliated member from off the floor, if 

the order is for such affiliated member’s 

own account, an account of an 

associated person, or an account over 

which it or an associated person 

exercises investment discretion. 

Consequently, the Commission believes 

orders transmitted for execution on the 

NYBX facility satisfy the off-floor 

transmission requirement. 

Non-Participation in Order Execution. 

Rule 11a2–2(T) further provides that a 

member and its associated persons may 

not participate in the execution of an 

order once it has been transmitted to the 

exchange floor.44 This requirement was 

included to prevent members with their 

own brokers on the exchange floor from 

using those persons to influence or 

guide their orders’ execution. This 

requirement does not preclude a 

member from canceling or modifying an 

order, or from modifying the 

instructions for executing the order after 

it has been transmitted to the floor. 

However, such cancellations or 

modifications must be transmitted from 

off the exchange floor.45

The Commission has stated that the 

non-participation requirement is 

satisfied by an automated system when 

the member’s use of such a system 

entails relinquishing the ability to 

influence or guide the execution of a 

Covered Account order once transmitted 

into the system.46 Once an order is 

entered into the NYBX facility, a 

member may not participate in, guide, 

or influence the execution of such order. 

NYBX orders are sent by electronic 

means directly into the NYBX facility. A 

user may enter and cancel an NYBX 

order any time during the regular 

trading day of the Exchange. NYSE has 

represented that matching, trading, and 

routing of orders are effectuated through 

an algorithm, which does not permit a 

user to affect the order or its execution 

in any way; thus, the member 

relinquishes all control of an NYBX 

order when trading commences. The 

Commission believes that, because a 

member relinquishes control of an order 

upon transmission to the facility and 

will not be able to influence or guide the 

execution of that order, the nonparticipation requirement is met with 

respect to orders that are executed 

automatically in the facility. 

Execution through Unaffiliated 

Member. Although Rule 11a2–2(T) 

contemplates having an order executed 

by an exchange member who is 

unaffiliated with the member initiating 

the order, the Commission has 

recognized that the requirement is not 

applicable when an automated exchange 

system is used, if the execution of the 

order is automatic once it has been 

transmitted into the system, and if the 

design of the system ensures that 

members do not possess any special or 

unique trading advantages in handling 

their orders after transmitting them to 

the system.47 The Commission has 

stated that, in such instances, 

executions obtained through these 

systems satisfy the independent 

execution requirement of Rule 11a2– 

2(T).48 NYBX orders are sent by 

electronic means to the NYBX facility. 

The Exchange has represented that the 

design of the NYBX facility ensures that 

members do not posses any special or 

unique trading advantages in the 

handling of the orders. 

Non-Retention of Compensation. The 

Commission notes that members that 

intend to rely on Rule 11a2–2(T) in 

connection with orders submitted to the 

NYBX facility must comply with the 

requirements of paragraph (a)(2)(iv) of 

that rule. 

In reliance on NYSE’s representations 

and for the reasons set forth above, the 

Commission believes that members 

entering orders into the NYBX facility 

would satisfy the requirements of Rule 

11a2–2(T) under the Exchange Act. 

E. Accelerated Approval 

The Commission finds good cause, 

pursuant to Section 19(b)(2) of the 

Exchange Act,49 for approving the 

proposed rule change, as modified by 

Amendment No. 1, prior to the thirtieth 

day after publication of notice of filing 

of Amendment No. 1 in the Federal 

Register. In Amendment No. 1, the 

Exchange proposes to delete the carveout relating to NYSE Rule 15A (Order 

Protection Rule). The Exchange has 

stated that this carve-out is ‘‘not 

necessary to ensure the effective 

operation of the NYBX Facility,’’ and 

elimination of the proposed change to 

Rule 15A clarifies that the operation of 

the NYBX facility would not affect the 

Exchange’s obligation to comply with 

Rule 611 of the Exchange Act. The 

Exchange also represented that it would 

disclose to NYBX users the implied 

conditions on NYBX orders. The other 

changes made by Amendment No. 1 are 

technical corrections to the proposed 

rule text. The rest of the proposed rule 

text, which has been subject to a full 

comment period, is unaffected. The 

Commission believes, therefore, that 

good cause exists to approve the 

proposed rule change, as amended, on 

an accelerated basis. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NYSE–2008–119 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–2008–119. This file 

number should be included on the 


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50 15 U.S.C. 78s(b)(2). 

51 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 58970 

(November 17, 2007), 73 FR 71062 (November 24, 

2008) (‘‘Notice’’). 

4Pursuant to Section 3(a)(2) of the Act, 15 U.S.C. 

78c(a)(2), the term ‘‘facility’’ when used with 

respect to an exchange, includes ‘‘its premises, 

tangible or intangible property whether on the 

premises or not, any right to the use of such 

premises or property or any service thereof for the 

purpose of effecting or reporting a transaction on an 

exchange (including, among other things, any 

system of communication to or from the exchange, 

by ticker or otherwise, maintained by or with the 

consent of the exchange), and any right of the 

exchange to the use of any property or service.’’ 

5See Notice, supra note 3, 73 FR at 71062. The 

terms ‘‘protected quotations’’ and ‘‘automated 

trading centers’’ will have the same meanings as 

defined in Rule 600 of Regulation NMS, 17 CFR 

242.600. 

6See Securities Exchange Act Release No. 59282 

(SR–NYSE–2008–119). 

7 ‘‘Interest’’ means the ownership interest in the 

Company, including its interest in the capital, 

profits, losses, and distributions of the Company. 

See Section 2.1 of the LLC Agreement. A person 

that holds an economic interest in an LLC generally 

must become party to the LLC Agreement and is 

referred to as a ‘‘Member.’’ See id. 

8See Notice, supra note 3, 73 FR at 71062. 

9See Section 8.1(c) of the LLC Agreement. 

10See Sections 8.1(a) and 8.3 of the LLC 

Agreement. 

11See Section 8.1(b) of the LLC Agreement. 

12See Section 8.3(a) of the LLC Agreement. 

13See Section 7.1(a) of the LLC Agreement. 

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 (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of NYSE. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NYSE–2008–119 and 

should be submitted on or before 

February 18, 2009. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,50

that the proposed rule change (SR– 

NYSE–2008–119), as modified by 

Amendment No. 1, be, and it hereby is, 

approved on an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.51

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–1805 Filed 1–27–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59281; File No. SR–NYSE– 

2008–120] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Order 

Approving Proposed Rule Change 

Relating to the Limited Liability 

Company Agreement of New York 

Block Exchange, a Facility of NYSE 

January 22, 2009. 

I. Introduction 

On November 14, 2008, the New York 

Stock Exchange, LLC (‘‘NYSE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’ or ‘‘SEC’’) a proposed 

rule change, pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 in connection with the 

formation of a joint venture between 

NYSE and BIDS Holdings L.P. (‘‘BIDS’’), 

a Delaware limited partnership, to 

establish a new electronic trading 

facility of the Exchange, the New York 

Block Exchange (‘‘NYBX’’). The 

proposed rule change was published for 

comment in the Federal Register on 

November 24, 2008.3 The Commission 

received no comments on the proposal. 

This order approves the proposed rule 

change. 

II. Overview 

NYSE proposes to establish NYBX as 

a facility 4 of the Exchange. NYBX 

would provide for electronic matching 

and execution of non-displayed orders 

with the aggregate of all displayed and 

non-displayed orders residing within 

NYBX and the NYSE Display Book. The 

Exchange represents that NYBX would 

consider protected quotations of all 

automated trading centers.5 Only 

securities listed on NYSE would be 

eligible to trade on NYBX. 

NYBX would be owned and operated 

by the New York Block Exchange LLC 

(‘‘Company’’), a Delaware limited 

liability company (‘‘LLC’’). With this 

proposed rule change, the Exchange 

seeks the Commission’s approval of the 

proposed governance structure of the 

Company as reflected in the Limited 

Liability Company Agreement (‘‘LLC 

Agreement’’). In a separate action today, 

the Commission approved the 

Exchange’s proposed rule change to 

establish the trading rules for NYBX.6

NYSE and BIDS each would own a 

50% economic interest (‘‘Interest’’) 7 in 

the Company. In addition to its Interest, 

NYSE would enter into an agreement 

with the Company (‘‘Services 

Agreement’’) pursuant to which NYSE 

would perform certain financial, 

operational, information technology, 

and development services for the 

Company.8 As a self-regulatory 

organization (‘‘SRO’’), NYSE has 

regulatory responsibility for all of its 

facilities, including NYBX. The 

Exchange has delegated certain of its 

self-regulatory responsibilities to its 

wholly owned subsidiary, NYSE 

Regulation, Inc. (‘‘NYSE Regulation’’), 

which performs the regulatory functions 

of NYSE pursuant to a delegation 

agreement. In the LLC Agreement, the 

Members acknowledge and agree that 

NYSE Regulation would carry out 

certain regulatory oversight of NYBX.9

The board of directors of the 

Company (‘‘Board of Directors’’) would 

manage the business and affairs of the 

Company 10 but would delegate the dayto-day operations of the Company and 

the development of NYBX to the 

Exchange pursuant to the Services 

Agreement.11 The Board of Directors 

would consist of two individuals 

designated by NYSE (‘‘NYSE Directors’’) 

and two individuals designated by BIDS 

(‘‘BIDS Directors’’).12 The Members 

would not otherwise participate in the 

management or control of the 

Company’s business.13


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