41766 Federal Register / Vol. 74, No. 158 / Tuesday, August 18, 2009 / Notices 

4See BOX Trading Rules, Chapter V, Section 16. 

5Subject to certain exceptions written into the 

BOX Trading Rules, such as Directed Orders 

(Chapter VI, Section 5(b)–(c)), and other exposure 

periods (See generally Chapter V, Section 16 

(Execution and Price/Time Priority). 

6See BOX Trading Rules, Chapter V, Section 

10(a). 

7 15 U.S.C. 78f(b). 

8 15 U.S.C. 78f(b)(5). 

9 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

matched automatically with quotes on 

the other side of the market according 

to time priority, and executed 

immediately.4 Because there is no 

trading floor and all orders are received 

and managed electronically, all orders 

on BOX are executed with matching 

contra orders within a fraction of a 

second after the matching quote is 

received.5 Any backlog in processing 

orders would be a result of a systems 

malfunction rather than from fast 

market conditions. Should any such 

backlog occur, the Exchange would halt 

trading on BOX until the issue could be 

resolved.6 Accordingly, the Exchange 

believes Chapter V, Section 13 is 

unnecessary in the BOX Rules and 

should be removed. 

In addition to removing Chapter V, 

Section 13, the proposed rule change 

would also remove certain rules related 

to fast markets. The Exchange proposes 

to modify Chapter VI, Section 6(a) to 

remove a fast market rule exception to 

the general rule that all Market Maker 

bids or offers must be of a size of at least 

ten (10) contracts. The Exchange also 

proposes to amend Section 6(c). First, 

Section 6(c)(ii)(2) will be removed to 

reflect the previously described removal 

of Chapter V, Section 13. Second, 

references to Rule 11Ac1–1 will be 

replaced with Rule 602 of Regulation 

NMS under the Exchange Act (‘‘Rule 

602’’). With the implementation of 

Regulation NMS, Rule 11Ac1–1, in 

pertinent part, has been incorporated 

into Rule 602. The proposed rule change 

would also modify Chapter XIV (Index 

Rules), Section 9(b) (Trading Sessions) 

by eliminating the declaration of a fast 

market as a factor in determining 

whether to delay the opening of the 

index options market. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with the 

requirements of Section 6(b) of the Act,7

in general, and Section 6(b)(5) of the 

Act,8 in particular, in that it is designed 

to prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to foster 

cooperation and coordination with 

persons engaged in 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. Specifically, the 

proposal will align the BOX Rules to 

more accurately reflect the 

circumstances surrounding trading on 

an electronic exchange and promote 

transparency. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will result in 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has neither solicited 

nor received comments on 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 (http://www.sec.gov/ 

rules/sro.shtml); or 

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

Number SR–BX–2009–041 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–BX–2009–041. 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 (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 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–BX–2009–041 and should 

be submitted on or before September 8, 

2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–19732 Filed 8–17–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60476; File No. SR–CBOE– 

2009–056] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Related to the Hybrid 

Matching Algorithms 

August 11, 2009. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on July 31, 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 158 / Tuesday, August 18, 2009 / Notices 41767 

3 15 U.S.C. 78s(b)(3)(A)(iii). 

4 17 CFR 240.19b–4(f)(6). 

5 In addition to AIM, CBOE has various electronic 

auctions that are described under Rules 6.13A, 

Simple Auction Liaison (‘‘SAL’’), 6.14, Hybrid 

Agency Liaison (HAL), and 6.74B, Solicitation 

Auction Mechanism (‘‘AIM SAM’’). Each of these 

auctions generally allocates executions pursuant to 

the matching algorithm in effect for the options 

class with certain exceptions noted in the 

respective rules. 

6For example DPMs must, among other things, (i) 

provide continuous electronic quotes in at least 

90% of the series of each multiply-listed option 

classed allocated to it and in 100% of the series of 

each singly-listed option class allocated to it, and 

assure that its disseminated market quotes are 

accurate; (ii) comply with bid/ask differential 

requirements; (iii) ensure that a trading rotation is 

initiated promptly following the opening of the 

underlying security (or promptly after 8:30 am 

Central Time in an index class) in 100% of the 

series of each allocated class by entering opening 

quotes as necessary. See CBOE Rule 8.85, DPM 

Obligations; see also CBOE Rule 8.15A, Lead 

Market-Makers in Hybrid Classes. 

7See CBOE Rules 6.45A(a)(i)(C) and (ii)(2), 

6.45B(a)(i)(2) and (ii)(C), 8.15B, Participation 

Entitlement for LMMs, and 8.87, Participation 

Entitlement of DPMs and e-DPMs. 

2009, the Chicago Board Options 

Exchange, Incorporated (‘‘Exchange’’ or 

‘‘CBOE’’) 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 

substantially prepared by the Exchange. 

The Exchange filed the proposal as a 

‘‘non-controversial’’ proposed rule 

change pursuant to Section 

19(b)(3)(A)(iii) of the Act 3 and Rule 

19b–4(f)(6) thereunder.4 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 is proposing to amend 

Rules 6.45A, Priority and Allocation of 

Equity Option Trades on the CBOE 

Hybrid System, and 6.45B, Priority and 

Allocation of Trades in Index Options 

and Options on ETFs on the CBOE 

Hybrid System, to include an additional 

priority overlay. The text of the 

proposed rule change is available on the 

Exchange’s Web site (http:// 

www.cboe.org/Legal), at the Exchange’s 

Office of the Secretary and at the 

Commission. 

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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

CBOE Rules 6.45A and 6.45B set 

forth, among other things, the manner in 

which electronic Hybrid System trades 

in options are allocated. Paragraph (a) of 

each rule essentially governs how 

incoming orders received electronically 

by the Exchange are electronically 

executed against interest in the CBOE 

quote. Paragraph (a) of each rule 

currently provides a ‘‘menu’’ of 

matching algorithms to choose from 

when executing incoming electronic 

orders. The menu format allows the 

Exchange to utilize different matching 

algorithms on a class-by-class basis. The 

menu includes, among other choices, 

the ultimate matching algorithm 

(‘‘UMA’’), as well as price-time and prorata priority matching algorithms with 

additional priority overlays. The 

priority overlays for price-time and prorata currently include: public customer 

priority for public customer orders 

resting on the Hybrid System, 

participation entitlements for certain 

qualifying market-makers, and a market 

turner priority for participants that are 

first to improve CBOE’s disseminated 

quote. These overlays are optional. 

The purpose of this rule filing is to 

adopt an additional priority overlay for 

small orders that can be applied to each 

of the three matching algorithms. In 

particular, if the small order priority 

overlay is in effect for an option class, 

then the following would apply: 

• Orders for five (5) contracts or fewer 

will be executed first by the Designated 

Primary Market-Maker (‘‘DPM’’) or Lead 

Market-Maker (‘‘LMM’’), as applicable, 

that is appointed to the option class; 

provided however, that on a quarterly 

basis the Exchange will evaluate what 

percentage of the volume executed on 

the Exchange (excluding volume 

resulting from the execution of orders in 

AIM (see CBOE Rule 6.74A, Automated 

Improvement Mechanism (‘‘AIM’’)) is 

comprised of orders for five (5) contracts 

or fewer executed by DPMs and LMMs, 

and will reduce the size of the orders 

included in this provision if such 

percentage is over forty percent (40%). 

• This procedure only applies to the 

allocation of executions among noncustomer orders and market maker 

quotes existing in the EBook at the time 

the order is received by the Exchange. 

No market participant is allocated any 

portion of an execution unless it has an 

existing interest at the execution price. 

Moreover, no market participant can 

execute a greater number of contracts 

than is associated with the price of its 

existing interest. Accordingly, the small 

order preference contained in this 

allocation procedure is not a guarantee; 

the DPM or LMM, as applicable, (i) must 

be quoting at the execution price to 

receive an allocation of any size, and (ii) 

cannot execute a greater number of 

contracts than the size that is associated 

with its quote. 

• If a Preferred Market-Maker (see 

CBOE Rule 8.13, Preferred MarketMaker Program) is not quoting at a price 

equal to the national best bid or offer 

(‘‘NBBO’’) at the time a preferred order 

is received, the allocation procedure for 

small orders described above shall be 

applied to the execution of the preferred 

order. If a Preferred Market Maker is 

quoting at the NBBO at the time the 

preferred order is received, the 

allocation procedure for all other sized 

orders, shall be applied to the execution 

of the preferred order (e.g., if the default 

matching algorithm is pro-rata with a 

public customer and participation 

entitlement overlay, the order will 

execution first against any public 

customer orders, then the Preferred 

Market-Maker would receive its 

participation entitlement, then the 

remaining balance would be allocated 

on a pro-rata basis). 

• The small order priority overlay 

will only be applicable to automatic 

executions and will not be applicable to 

any electronic auctions.5

Lastly, it should be noted that, like 

the existing priority overlays, the small 

order priority overlay is optional. All 

determinations would be set forth in a 

regulatory circular. 

According to the Exchange, because 

DPMs and LMMs have unique 

obligations to the CBOE market,6 they 

are provided with certain participation 

rights. Under the current rule, if the 

DPM or LMM, as applicable, is one of 

the participants with a quote at the best 

price, the participation entitlement is 

generally equal to 50% when there is 

one Market-Maker also quoting at the 

best bid/offer on the Exchange, 40% 

when there are two Market-Makers also 

quoting at the best bid/offer on the 

Exchange, and 30% when there are 

three or more Market-Makers also 

quoting at the best bid/offer on the 

Exchange.7 The Exchange is now 

seeking to expand these programs to 

make available an allocation procedure 


jlentini on DSKJ8SOYB1PROD with NOTICES
41768 Federal Register / Vol. 74, No. 158 / Tuesday, August 18, 2009 / Notices 

8 15 U.S.C. 78s(b)(1). 

9 15 U.S.C. 78f(b). 

10 15 U.S.C. 78f(b)(5). 

11 15 U.S.C. 78s(b)(3)(A). 

12 17 CFR 240.19b–4(f)(6). Rule 19b–4(f)(6)(iii) 

requires a self-regulatory organization to provide 

the Commission with written notice of its intent to 

file the proposed rule change, along with a brief 

description and text of the proposed rule change, 

at least five business days prior to the date of filing 

of the proposed rule change, or such shorter time 

as designated by the Commission. The Commission 

deems this requirement to have been met. 

that provides that the DPM or LMM, as 

applicable, has precedence to execute 

orders of five (5) contracts or fewer. The 

Exchange believes that this small order 

priority overlay will not necessarily 

result in a significant portion of the 

Exchange’s volume being executed by 

the DPM or LMM, as applicable. As 

stated above, the DPM or LMM would 

execute against such orders only if it is 

quoting at the best price, and only for 

the number of contracts associated with 

its quotation. Nevertheless, the 

Exchange will evaluate what percentage 

of the volume executed on the Exchange 

is comprised of orders for five (5) 

contracts or fewer executed by DPMs 

and LMMs, and will reduce the size of 

the orders included in this provision if 

such percentage is over forty percent 

(40%). 

The small order priority overlay 

described above is part of CBOE’s 

careful balancing of the rewards and 

obligations that pertain to each of the 

Exchange’s classes of memberships. 

This balancing is part of the overall 

market structure that is designed to 

encourage vigorous price competition 

between Market-Makers on the 

Exchange, as well as maximize the 

benefits of price competition resulting 

from the entry of customer and noncustomer orders, while encouraging 

participants to provide market depth. 

The Exchange believes the proposed 

small order priority overlay, which 

includes participation rights for DPMs 

and LMMs only when they are quoting 

at the best price, strikes the appropriate 

balance within its market and 

maximizes the benefits of an electronic 

market for all participants. 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the Act 8

and the rules and regulations 

thereunder and, in particular, the 

requirements of Section 6(b) of the Act.9

Specifically, the Exchange believes the 

proposed rule change is consistent with 

the Section 6(b)(5) 10 requirements that 

the rules of an exchange be designed to 

promote just and equitable principles of 

trade, to prevent fraudulent and 

manipulative acts, to remove 

impediments to and to perfect the 

mechanism for a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. In particular, as 

described further above, the Exchange 

believes the proposed rule change is 

part of the balancing of CBOE’s overall 

market structure, which is designed to 

encourage vigorous price competition 

between Market-Makers on the 

Exchange, as well as maximize the 

benefits of price competition resulting 

from the entry of customer and noncustomer orders, while encouraging 

participants to provide market depth. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

CBOE does not believe that the 

proposed rule change will impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange neither solicited nor 

received comments on the proposal. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing rule does not (i) 

significantly affect the protection of 

investors or the public interest; (ii) 

impose any significant burden on 

competition; and (iii) become operative 

for 30 days from the date on which it 

was filed, or such shorter time as the 

Commission may designate if consistent 

with the protection of investors and the 

public interest, provided that the selfregulatory organization has given the 

Commission written notice of its intent 

to file the proposed rule change at least 

five business days prior to the date of 

filing of the proposed rule change or 

such shorter time as designated by the 

Commission, the proposed rule change 

has become effective pursuant to 

Section 19(b)(3)(A) of the Act 11 and 

Rule 19b–4(f)(6) thereunder.12

At any time within 60 days of the 

filing of such proposed rule change, the 

Commission may summarily abrogate 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. 

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–CBOE–2009–056 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–CBOE–2009–056. 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 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 the CBOE. 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–CBOE–2009–056 and 

should be submitted on or before 

September 8, 2009. 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 158 / Tuesday, August 18, 2009 / Notices 41769 

13 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4See Securities Exchange Act Release No. 57323 

(February 13, 2008), 73 FR 9371 (February 20, 2008) 

(SR–NYSE–2008–09). 

5See Securities Exchange Act Release No. 57826 

(May 15, 2008), 73 FR 29802 (May 22, 2008) (SR– 

NASDAQ–2007–001). 

6See Securities Exchange Act Release No. 58328 

(August 8, 2008), 73 FR 47247 (August 13, 2008) 

(SR–NYSE–2008–63). 

7See Securities Exchange Act Release No. 58732 

(October 3, 2008), 73 FR 61183 (October 15, 2008) 

(SR–NYSE–2008–99). 

8See Securities Exchange Act Release No. 59255 

(January 15, 2009) 74 FR 4496 (January 26, 2009) 

(SR–NYSE–2009–02). 

9See Securities Exchange Act Release No. 59581 

(March 9, 2009) 74 FR 12431 (March 24, 2009) (SR– 

NYSE–2009–26). 

10See Securities Exchange Act Release No. 59838 

(April 28, 2009) 74 FR 20767 (May 5, 2009) (SR– 

NYSEArca–2009–36) (See NYSE Arca Rule 7.10). 

11See Securities Exchange Act Release No. 60131 

(June 17, 2009) 74 FR 30196 (June 24, 2009) (SR– 

NYSEArca–2009–57). [sic] 

12See Securities Exchange Act Release No. 60312 

(July 15, 2009) 74 FR 36298 (July 22, 2009) (SR– 

NYSE–2009–70). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–19734 Filed 8–17–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60478; File No. SR–NYSE– 

2009–81] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by New York 

Stock Exchange LLC Extending Until 

August 21, 2009, the Operation of 

Interim NYSE Rule 128 Which Permits 

the Exchange To Cancel or Adjust 

Clearly Erroneous Executions If They 

Arise Out of the Use or Operation of 

Any Quotation, Execution or 

Communication System Owned or 

Operated by the Exchange, Including 

Those Executions That Occur in the 

Event of a System Disruption or 

System Malfunction 

August 11, 2009. 

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 August 

10, 2009, 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 and II 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to extend 

until August 21, 2009, the operation of 

interim NYSE Rule 128 (‘‘Clearly 

Erroneous Executions for NYSE 

Equities’’) which permits the Exchange 

to cancel or adjust clearly erroneous 

executions if they arise out of the use or 

operation of any quotation, execution or 

communication system owned or 

operated by the Exchange, including 

those executions that occur in the event 

of a system disruption or system 

malfunction. The text of the proposed 

rule change is available at the Exchange, 

the Commission’s Public Reference 

Room, and http://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 extend 

until August 21, 2009, the operation of 

interim NYSE Rule 128 (‘‘Clearly 

Erroneous Executions for NYSE 

Equities’’) which permits the Exchange 

to cancel or adjust clearly erroneous 

executions if they arise out of the use or 

operation of any quotation, execution or 

communication system owned or 

operated by the Exchange, including 

those executions that occur in the event 

of a system disruption or system 

malfunction. 

Prior to the implementation of NYSE 

Rule 128 on January 28, 2008,4 the 

NYSE did not have a rule providing the 

Exchange with the authority to cancel or 

adjust clearly erroneous trades of 

securities executed on or through the 

systems and facilities of the NYSE. 

In order for the NYSE to be consistent 

with other national securities exchanges 

which have some version of a clearly 

erroneous execution rule, the Exchange 

is drafting an amended clearly 

erroneous rule which will accommodate 

such other exchanges but will be 

appropriate for the NYSE market model. 

The NYSE notes that the Commission 

approved an amended clearly erroneous 

execution rule for Nasdaq in May 2008.5

On July 28, 2008, the Exchange filed 

with the SEC a request to extend the 

operation of interim Rule 128 until 

October 1, 2008 6 in order to review the 

provisions of Nasdaq’s clearly erroneous 

rule and to consider integrating similar 

standards into its own amendment to 

Rule 128. On October 1, 2008,7 the 

Exchange filed with the SEC a further 

request to extend the operation of 

interim Rule 128 until January 9, 2009 

in order to consider integrating similar 

standards into the amendment to Rule 

128. On January 9, 2009,8 the Exchange 

filed with the SEC a request to extend 

the operation of interim Rule 128 until 

March 9, 2009, indicating that the 

Exchange was still in the process of 

reviewing the Nasdaq rule with a view 

towards incorporating certain 

provisions into the amendment of 

interim Rule 128. 

On February 10, 2009, NYSE Arca 

submitted a proposal to the SEC to 

amend its clearly erroneous rule. The 

NYSE Arca proposed rule differed in 

certain respects from the Nasdaq clearly 

erroneous rule. On March 9, 2009, the 

Exchange filed with the SEC a request 

to extend the operation of interim Rule 

128 until June 9, 2009 9 to finalize 

review of NYSE Arca’s proposed 

amended CEE rule, which included 

market wide CEE initiatives, to 

determine if it was appropriate to 

incorporate such provisions into the 

Rule 128 amendment. 

Thereafter, on April 24, 2009, NYSE 

Arca filed a revised rule change with the 

Commission to amend its clearly 

erroneous rule (NYSE Arca Rule 7.10).10

The Exchange was in the process of 

finalizing its review of NYSE Arca’s 

revised CEE rule change, which also 

included market wide CEE initiatives, to 

determine if it was appropriate to 

incorporate all such provisions into 

NYSE’s interim Rule 128 amendment. 

On June 9, 2009, the Exchange filed 

with the SEC a request to extend the 

operation of interim Rule 128 until July 

15, 2009 11 to finalize review of NYSE 

Arca’s proposed amended CEE rule. On 

July 15, 2009 12 the Exchange filed with 

the SEC a request to extend the 

operation of interim Rule 128 until 

August 1, 2009 to finalize review of 


jlentini on DSKJ8SOYB1PROD with NOTICES