57590 Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Notices 

13 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Amendment No. 1 (‘‘Amendment No. 1’’) 

replaced the original filing in its entirety. 

4Partial Amendment No. 2 (‘‘Amendment No. 2’’) 

added proposed rule language to NYSE Rule 1000 

governing the maximum order size of automatic 

executions. 

5Partial Amendment No. 3 (‘‘Amendment No. 3’’) 

removed proposed changes to NYSE Rule 13 related 

to At the Opening or At the Opening Only Orders 

and Regulation NMS-compliant Immediate or 

Cancel Orders. 

6See Securities Exchange Act Release No. 53539 

(March 22, 2006), 71 FR 16353 (March 31, 2006), 

(SR–NYSE–2004–05) (‘‘Hybrid Order’’). 

7 Id. 

Register or within such longer period (i) 

as the Commission may designate up to 

ninety days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve such proposed 

rule change or 

(B) Institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change, as amended, 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–NSCC–2006–09 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NSCC–2006–09. 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 

Section, 100 F Street, NE., Washington, 

DC 20549. Copies of such filing also will 

be available for inspection and copying 

at the principal office of NSCC and on 

NSCC’s Web site at http:// 

www.nscc.com/legal. 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–NSCC–

2006–09 and should be submitted on or 

before October 16, 2006. 

For the Commission by the Division of 

Market Regulation, pursuant to delegated 

authority.13

J. Lynn Taylor, 

Assistant Secretary. 

[FR Doc. E6–15985 Filed 9–28–06; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–54520; File No. SR–NYSE–

2006–65] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing of Proposed Rule Change and 

Amendment Nos. 1, 2 and 3 Thereto 

Relating to Exchange Rules Governing 

Certain Definitions, Systemic 

Processing of Certain Orders, and the 

Implementation Schedule of the NYSE 

HYBRID MARKETSM

September 27, 2006. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on August 

23, 2006 the New York Stock Exchange 

LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

On September 11, 2006, September 15, 

2006, and September 26, 2006 the 

Exchange filed Amendment Nos. 1,3 2,4

and 3 5 respectively, to the proposed 

rule change. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change, 

as amended, from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NYSE proposes to amend Exchange 

Rules to clarify certain definitions and 

systemic processes in the NYSE 

HYBRID MARKETSM (‘‘Hybrid 

Market’’). The proposed amendment 

further serves to differentiate between 

certain definitions in NYSE Rule 13 and 

terms in NYSE Rule 1000 (Direct +). It 

also adds in the rule text a chart 

containing the Exchange’s calculated 

liquidity replenishment points 

(‘‘LRPs’’). In addition, this filing updates 

the Hybrid Market implementation 

schedule.6

The text of the proposed rule change, 

as amended, is available on NYSE’s Web 

site at (http://www.nyse.com), at the 

principal office of NYSE, and at the 

Commission’s Public Reference Room. 

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 

Exchange included statements 

concerning the purpose of, and basis for, 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change, as amended. The 

text of these 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 

aspects 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 is submitting this 

proposed rule change to amend certain 

rules governing the Hybrid Market in 

order to clarify definitions and the 

operation of certain systemic processes. 

The Commission approved the Hybrid 

Market on March 22, 2006.7 The 

approved rules did not become effective 

immediately; rather they are being 

implemented in a series of phases over 

a period of time. 

Implementation of Phase 1 of the 

Hybrid Market, which focused primarily 

on the ability of Floor brokers to 

electronically represent their customers’

interest (‘‘e-Quote’’) was substantially 

completed on April 5, 2006. 

The installation of software necessary 

to implement Phase 2 of the Hybrid 


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8See Securities Exchange Act Release No. 53791 

(May 11, 2006), 71 FR 28732 (May 17, 2006). This 

Pilot expires on October 31, 2006. 

9See Securities Exchange Act Release No. 54024 

(June 21, 2006), 71 FR 36849 (June 28, 2006). This 

is effective until Phase 2 is fully implemented. 

10See Securities Exchange Act Release No. 54316 

(August 15, 2006), 71 FR 48569 (August 21, 2006). 

This is effective until Phase 2 is fully implemented. 

11Floor broker discretionary orders are the 

subject of a separate filing. See Securities Exchange 

Release No. 54150 (July 14, 2006), 71 FR 41496 

(July 21, 2006) (Notice of SR–NYSE–2006–36). 12See Hybrid Order, supra note 6. 

Market, which focuses primarily on the 

ability of specialists to algorithmically 

quote and trade, has been installed 

Floor-wide. Specialist firms are in the 

process of readying their algorithmic 

systems so that they can begin operating 

the systems as permitted in Phase 2. 

In addition, on May 12, 2006, the 

Exchange implemented a Hybrid Market 

Pilot (‘‘Pilot’’) that increased the 

availability of automatic executions in 

the securities participating in the Pilot 

by: (i) Raising the maximum size of an 

auto ex order to one million shares 

(with the ability to increase the 

maximum size to three million shares); 

(ii) eliminating the prohibition against 

entry of orders for the account of the 

same beneficial owner in less than 30- 

second intervals; (iii) treating all market 

orders in Pilot securities as auto ex 

orders; and (iv) implementing the 

approved change to NYSE Rules 13 and 

1000 regarding auto execution of 

marketable limit orders.8 Currently, the 

Pilot applies to one security—Lucent 

Technologies, Inc. 

Similarly, starting June 21, 2006, 

specialists were permitted to 

algorithmically quote (‘‘s-Quote’’) in 

their specialty securities, without the 

receipt of order information as such 

orders are entering Exchange systems.9

Starting August 15, 2006, specialists 

were permitted to send algorithmicallygenerated trading messages to interact 

with the Exchange quotation (‘‘hit bid/ 

take offer’’), also without receipt of 

order information as such orders are 

entering Exchange systems.10

Phase 3 of the Hybrid Market which 

includes, among other things, Floor 

broker discretionary orders, if approved 

by the Commission,11 implementation 

of sweeps, auto-routing of orders to 

markets displaying better bids and 

offers, and elimination of restrictions on 

Direct+ availability, is scheduled to 

begin in or about early October 2006. 

Since the approval of the Hybrid 

Market, the Exchange has continued to 

discuss Hybrid Market features with its 

members and advisory committees. 

Based on these discussions, the 

Exchange has decided to propose 

changes to certain aspects of the Hybrid 

Market to produce a trading venue that 

best addresses the various needs of our 

customers and members. In addition, in 

order to accomplish the implementation 

of Phase 3 with the functionalities noted 

above within a similar time frame as 

that originally proposed, certain 

amendments to the approved Hybrid 

Market rules are necessary. 

Amendments to the Definitions of 

Orders Types—Exchange Rule 13 and 

Conforming Changes to Related Rules 

Auto Ex Order 

Definition 

The definition of an ‘‘auto ex’’ order 

in NYSE Rule 13 originally 

encompassed only orders that were 

specifically entered for automatic 

execution. In other words, an ‘‘auto ex’’

order was one specifically designated 

for automatic execution and thereby 

immediately initiates an automatic 

execution upon entry. In the original 

definition, an order that merely 

participated in an automatic execution 

was not an ‘‘auto ex’’ order simply by 

virtue of such participation. As such, 

the definition focused on the order’s 

designation when entered, not how the 

order was executed. 

The Hybrid Market filings amended 

this definition by listing various types of 

orders that initiate or participate in 

automatic executions. By so doing, the 

concept that an ‘‘auto ex’’ order is one 

that immediately initiates an automatic 

execution upon entry was lost. 

However, the amended rule didn’t 

include all order types that are capable 

of participating in an automatic 

execution. For example, it omitted 

auction limit orders which, while 

primarily an order type that offers an 

opportunity for price improvement 

through manual handling, may 

participate in or initiate automatic 

executions. 

In addition, Exchange systems retain 

the concept that an ‘‘auto ex’’ order is 

one that initiates an automatic 

execution immediately upon entry, 

systemically applying the designation in 

those cases where the order omits it. For 

example, a marketable limit order 

entered on the Exchange will initiate an 

automatic execution immediately upon 

entry on the Exchange. Such order no 

longer needs to be specifically 

designated for automatic execution by 

the person entering the order; Exchange 

systems apply the appropriate 

designation. 

As a result, the definition of ‘‘auto ex’’

order as approved in the Hybrid Market 

filings is not complete nor is it 

consistent with Exchange systems. The 

Exchange proposes to clarify that an 

‘‘auto ex’’ order is an order that initiates 

an automatic execution immediately 

upon arrival. Accordingly, reference to 

elected stop, stop limit orders, and 

CAP–DI orders will be eliminated from 

the rule as they do not initiate an 

automatic execution upon their entry on 

the Exchange. In addition, to assist 

people who may look to this definition 

in connection with the general topic of 

automatic executions, the Exchange 

proposes to add a section that clarifies 

that ‘‘non-auto-ex’’ orders (i.e., elected 

stop orders, percentage orders, etc.) 

participate in or initiate automatic 

executions in accordance with the rules 

governing their operation. 

Further, the Exchange proposes to 

amend NYSE Rules 1000–1004 to 

replace the term ‘‘auto ex’’ with the 

words ‘‘automatically executing’’ to 

reflect that these rules govern all 

automatic executions, not just those 

involving an auto ex order. 

Market Orders 

The definition of an ‘‘auto ex’’ order 

in NYSE Rule 13, as amended by the 

Hybrid Market filings, included a 

‘‘market order designated for automatic 

execution.’’ The Exchange proposes to 

amend this definition to include all 

market orders. In other words, a market 

order no longer needs to be designated 

for automatic execution to be treated as 

an auto ex order. The Exchange believes 

this change will benefit customers by 

simplifying order entry requirements for 

market orders, treating them in the same 

fashion as marketable limit orders. 

Conforming changes to NYSE Rules 

104(c)(vii), 104(e)(i), 123(e)(7), 123F(b), 

132B(a)(9), and 132B(b)(9) are also 

proposed. 

Buy Minus—Sell Plus Orders 

The reference in the definition of an 

‘‘auto ex’’ order to a ‘‘sell ‘plus’—‘buy’

‘minus’ ’’ order has been rephrased to 

‘‘buy minus—sell plus’’ to track the way 

that order type is referred to in other 

places in Exchange rules. 

Maximum Size 

The maximum size of automatic 

executions, which had been included in 

NYSE Rule 13’s definition of an ‘‘auto 

ex’’ order, was eliminated in the Hybrid 

Market filings.12 However, there is a 

maximum order size that Exchange 

systems can handle, currently 3,000,000 

shares. Additionally, the Exchange 

proposes to gradually increase the size 

of automatic executions, rather than 

start with a maximum size of 3 million 

shares. Accordingly, the Exchange 

proposes to add a rule that reflects this. 

The Exchange proposes to phase-in the 


jlentini on PROD1PC65 with NOTICES
57592 Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Notices 

13NYSE Rule 13’s definition of ‘‘auto ex’’ order 

currently has a provision regarding the maximum 

size of an ‘‘auto ex’’ order applicable only to the 

Lucent Pilot. See Securities Exchange Act Release 

No. 53791, supra note 8. This part of the rule is 

designated with a ‘‘P.’’ This rule is virtually 

identical to the proposed rule regarding maximum 

size, discussed above. However, given the limited 

applicability of the Lucent Pilot rule and the fact 

that it has been in place since mid-May, the 

Exchange does not propose changing its 

designation. 

14See Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496 (June 29, 2005) (File 

No. S7–10–04) (17 CFR parts 200, 201, 230, 240, 

242, 249 and 270). 

15A protected bid and offer is one that meets the 

definition set forth in Section 242.600(b)(57) of 

Regulation NMS, 17 CFR 242.600(b)(57). 

16SuperDot is an electronic order-routing 

system used by NYSE member firms to send market 

and limit orders to the NYSE. 

17The Book is an order management and 

execution facility. It receives and displays orders to 

specialists and provides a mechanism to execute 

and report transactions and publish results to the 

Consolidated Tape. In addition, the Book is 

connected to a variety of other NYSE systems for 

purposes of comparison, surveillance, and reporting 

information to customers and market data and 

National Market Systems, such as the Intermarket 

Trading System, Consolidated Tape and 

Consolidated Quote. 

maximum order size eligibility for 

automatic executions, beginning with a 

maximum size of 1,000,000 shares. 

Given the change to the definition of 

an ‘‘auto ex’’ order, discussed above, 

NYSE Rule 13’s ‘‘auto ex’’ definition no 

longer appears to be the appropriate 

location for this provision. Accordingly, 

the Exchange proposes to move it to the 

Direct+ rules, as the first provision 

under NYSE Rule 1000.13

Auction Market Orders 

As a result of the change in the way 

market orders will be handled, 

discussed above, the Exchange proposes 

to add a definition for ‘‘Auction Market 

Order’’ to NYSE Rule 13. Conforming 

changes to NYSE Rules 104(c)(vii), 

104(e)(i), 123(e)(7), 123F(b), 132B(a)(9) 

and 132B(b)(9) are also proposed. 

Immediate or Cancel (‘‘IOC’’) Orders 

In the Hybrid Market Filings, the 

Exchange created two types of IOC 

orders which are defined in NYSE Rule 

13. The first type is an IOC order that 

complies with the SEC’s Regulation 

NMS (‘‘Reg. NMS’’).14 A Reg. NMS IOC 

order would not be routed during an 

Exchange sweep, if any, to satisfy better 

priced protected bids or offers 15

displayed by other market centers; 

rather, a Reg. NMS IOC order would be 

cancelled and the Exchange sweep 

would end. 

The second type of IOC order is a 

‘‘NYSE IOC’’ order. Unlike a Reg. NMS 

IOC order, a NYSE IOC order permits 

portions to be routed during a sweep, if 

any, to other markets to satisfy better 

priced protected bids or offers and 

cancels only when once it is no longer 

able to receive an execution. 

In this filing, the Exchange proposes 

to amend NYSE Rule 13 to reflect that 

IOC orders discussed in NYSE Rule 13 

paragraph (a) are now identified as 

Regulation NMS-compliant Immediate 

or Cancel orders. 

The Exchange also seeks to amend the 

definition of a NYSE IOC order to clarify 

that Exchange systems will accept NYSE 

IOC orders for participation in the reopening trade after a trading halt. 

Specifically, NYSE IOC orders received 

during a trading halt will be 

systemically maintained in their order 

of receipt for execution upon the reopening of the halted security. If a 

NYSE IOC order is not executed as part 

of the re-opening trade, the order will be 

cancelled. This is similar to the way in 

which IOC orders are handled currently 

on the Exchange. 

Stop Orders and Stop Limit Orders 

Several changes are proposed to the 

definition and operation of stop orders, 

and references to stop limit orders is 

proposed to be deleted from Exchange 

rules, including NYSE Rule 13. These 

changes are discussed in detail below. 

Modifications to Systemic Processing 

Stop Orders and Stop Limit Orders 

The Exchange is proposing to amend 

its rules relating to the processing of 

Stop (‘‘STP’’) orders and Stop Limit 

(‘‘STL’’) orders. These order types 

require that the stock in question trade 

at a specified price (‘‘the electing price’’) 

before the order becomes capable of 

execution. Once a transaction is 

executed on the Exchange at the electing 

price, the STP or STL order becomes a 

market order or a limit order, 

respectively. The proposed amendment 

seeks to modify the way in which STP 

orders are handled and processed. It 

further seeks to eliminate STL orders, 

which represent a very small percentage 

of the orders entered on the Exchange. 

Elimination of Stop Limit Orders 

Under the proposed amendments, the 

Exchange would eliminate STL orders 

as an acceptable order type, given their 

infrequent use. Currently STL orders 

represent a very small percentage of 

total order flow on the Exchange. For 

example, on trade dates between March 

20, 2006 and March 28, 2006, STL 

orders represented approximately 

.028% of the total number of orders 

entered on the Exchange. Given the 

relatively small customer demand for 

this order type, the Exchange proposes 

to eliminate it in its entirety. Exchange 

systems would be programmed to reject 

all STL orders. Existing GTC STL orders 

would be purged after notice to the 

entering firm. 

Accordingly, the definition of a STL 

is proposed to be deleted from NYSE 

Rule 13 and conforming changes 

eliminating references to STLs are 

proposed with respect to other 

definitions within NYSE Rule 13 and 

NYSE Rules 76, 118(2), 123(e)(7), 124(f), 

132B(a)(9) and (b)(9), 750.91 and .92, 

476A, and 1004. 

New Processing of Stop Orders 

Today, STP orders are entered 

primarily through SuperDOT 16 and 

are routed directly to the Display Book 

(‘‘Book’’),17 where they reside awaiting 

election. The specialist assigned to each 

security has the ability to view the 

prices at which STP orders would be 

elected and the sizes of such orders. As 

a result of the specialist’s ability to view 

information that is not available to other 

market participants, NYSE Rule 

123A.40 requires that, in certain 

circumstances described below, the 

specialist guarantees the price that 

elected STP orders receive. 

The Exchange proposes to migrate the 

processing of STP orders away from the 

Book so that STP orders will no longer 

be visible to the specialist or available 

to the specialist’s system employing 

algorithms. Rather, STP orders will be 

maintained in a ‘‘blind file’’ in order of 

the time received. The rule has been 

amended to remove references to STP 

orders being routed to the Book because, 

under the proposed STP order 

processing, Exchange Systems will 

handle STP orders so that the STP order 

is not visible to the part of the Book the 

specialist ‘‘sees.’’ When a transaction on 

the Exchange results in the election of 

a STP order that had been received prior 

to such transaction, the elected STP 

order will be sent as a market order to 

the Book and the specialist’s system 

employing algorithms and will be 

handled in the same way as any other 

market order. This change removes the 

specialist’s ability to view the electing 

price and size of STP orders. As a result, 

the specialist will no longer have any 

unique information regarding STP 

orders. 

In order to maintain the integrity of 

the blind file, NYSE Rule 115A is being 

added and NYSE Rule 116.50 amended 

to prohibit specialists, trading 

assistants, and anyone on their behalf 

from using the opening and closing 

process, proposed below, in a manner 

designed to inappropriately discover 

information about unelected STP 


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18The proposed opening and closing processes 

for STP order handling are not available intraday; 

therefore, during the trading day, it is not possible 

for these processes to be employed in a manner 

designed to inappropriately discover information 

about unelected STP orders. 

19A MOC order is a market order, which is to be 

executed in its entirety at the closing price, on the 

Exchange, of the stock named in the order, and if 

not so executed, is to be treated as cancelled. A LOC 

order is a limit order, which may or may not receive 

execution on the close depending on the closing 

price and depth of contra side interest. The term ‘‘at 

the close order’’ also includes a limit order that is 

entered for execution at the closing price, on the 

Exchange, of the stock named in the order, pursuant 

to such procedures as the Exchange may from time 

to time establish. 

20A member or member organization is deemed 

to have ‘‘missed the market’’ when it has accepted 

an order for execution and by reason of neglect or 

otherwise fails to execute an executable order in the 

prevailing market. 

orders.18 Accordingly, while it is 

appropriate and expected that 

specialists and trading assistants will 

effect multiple searches to determine 

appropriate opening and closing prices, 

to the extent that such prices have been 

identified, further searches outside the 

identified prices for the purpose of 

identifying the election prices and sizes 

of STP orders would be inappropriate. 

Opening and closing procedures on 

the Exchange will be modified to 

accommodate the fact that the 

specialists will no longer be able to 

determine and account for STP order 

volume that would be elected by the 

opening or closing execution. Currently, 

the specialist calculates the opening 

price based in part on the STP order 

volume that will be elected by the 

opening trade. The opening trade 

executed by the specialist is reflected in 

the first print. The STP order volume 

elected by the opening execution trades 

at the same price as the open, and is 

reflected in the second print. Similarly, 

on the close, the specialist calculates the 

closing price based in part on the STP 

order volume that will be elected and 

the volume of buy and sell market-onclose/limit-on-close (MOC/LOC) 19

orders that will be executed as a result 

of the closing price. 

In order for the specialist to continue 

to effectively price the opening and the 

close, the specialist must have an 

accurate understanding of the total 

volume of shares available for purchase 

and sale at the opening price and at the 

closing price. 

On the open, this will be 

accomplished by the specialist or 

trading assistant indicating to the 

system the price at which the specialist 

contemplates opening the stock. The 

system will then calculate the volume of 

shares available for execution on the 

open at that price, including STP order 

volume that would be elected by an 

execution at that price. There will be no 

indication what, if any, portion of the 

total volume accounts for STP orders. 

As a result there will only be one 

opening print, and it will include STP 

orders that are elected by the opening 

trade. 

Similarly, prior to the close, the 

specialist or trading assistant will 

indicate to the system the price at which 

the specialist is contemplating closing 

the stock. In turn, the system will 

calculate the volume of shares 

executable on the close at that price, 

including STP order volume that would 

be elected by an execution at that price. 

Once again, there will be no indication 

what, if any, portion of the total volume 

accounts for STP orders. The unelected 

STP orders will only be included in the 

total volume of shares available to trade 

on the close five minutes prior to the 

close. 

The definition of a STP order in NYSE 

Rule 13 will be amended to reflect these 

changes and similar conforming changes 

will be made to NYSE Rules 116.40 and 

123C(3)(A). 

Elimination of Specialist’s Guarantee 

NYSE Rule 123A.40 requires the 

specialist to guarantee that elected STP 

orders receive the same price as the 

electing sale under certain conditions: 

Specifically, if the specialist was party 

to the election of such STP order and 

his or her bid (offer) had the effect of 

bettering the market or was part of an 

electing transaction that was more than 

0.10 cents away from the prior 

transaction price. This rule addressed 

the fact that specialists have the ability 

to view the electing prices and sizes of 

all STP orders present on his or her 

Book, information that is not generally 

available to the rest of the market. 

Requiring the specialist to guarantee the 

price at which these orders are executed 

in the circumstances prescribed by 

NYSE Rule 123A.40 removes any 

incentive on the part of the specialist to 

effect proprietary trades that would 

cause the election of the STP orders 

inappropriately. 

Under the Exchange proposal, the 

specialists will no longer have access to 

the electing price and size information 

for STP orders. Thus, the reason for the 

price guarantee required by current 

NYSE Rule 123A.40 will no longer exist 

and the Exchange proposes its 

elimination. Conforming changes to 

NYSE Rules 104.10(5)(ii), 115(iii), and 

476A are similarly proposed. 

Elimination of Floor Official Approval 

NYSE Rule 13.30(v) currently requires 

a specialist to obtain Floor Official 

approval prior to the execution of a 

transaction under the circumstances 

outlined in sections (i), (ii), (iii) and (iv) 

of the rule, if the bid or offer that would 

elect the STP order was more than 0.10 

point away from the last sale and was 

being made for the specialist dealer 

account. Similar to the price guarantee 

required by NYSE Rule 123A.40, this 

rule addresses the fact that specialists 

have information about STP orders that 

is not generally available to the rest of 

the market; that is, specialists have the 

ability to view the electing prices and 

sizes of all STP orders present on the 

Book. Requiring the specialist to obtain 

Floor Official approval prior to the 

execution of the transaction removes 

any incentive on the part of the 

specialist to effect proprietary trades 

that would cause the election of the STP 

orders inappropriately. 

However, as stated above, under the 

Exchange proposal, specialists will no 

longer have access to the electing price 

and size information for STP orders. 

Accordingly, their proprietary trading 

decisions would not be made with 

knowledge that it would elect STP 

orders. Therefore, the reason for the 

Floor Official approval required by 

current NYSE Rule 13.30(v) will no 

longer exist, and the Exchange proposes 

its elimination. 

Floor Broker STP Order Processing 

Under the proposed amendments, a 

Floor broker will still be permitted to 

receive and execute STP orders. A Floor 

broker in receipt of a STP order may 

transmit the STP order to SuperDOT

and that order will be processed and 

executed as outlined above. 

Additionally, a Floor broker may choose 

to manually represent the STP order in 

the Crowd. However, the Floor broker 

would be responsible for monitoring for 

the election of the STP order (i.e., there 

would be no systemic support for STP 

orders handled by a Floor broker in the 

Crowd). As explained above, once the 

STP order is elected, it becomes a 

market order, and the Floor broker 

would be required to appropriately 

execute such market order. Given the 

increased pace of order executions, a 

Floor broker who represents a STP order 

in the Crowd is at risk of missing the 

market upon election of such manuallyhandled STP order.20 Moreover, STP 

orders represented by Floor brokers in 

the Crowd may not be included in a 

Floor Broker Agency Interest File (‘‘eQuote’’). NYSE Rule 70.20 is proposed 

to be amended to reflect this. 

Redefinition of Sweep 

NYSE Rule 1000(d) describes the 

manner in which automatically 


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57594 Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Notices 

executing orders will trade. Section (iii) 

of that rule provides that the residual of 

an automatically executing order will 

‘‘sweep,’’ trading with orders on the 

Book and any broker agency interest 

files (also referred to as 

‘‘e-Quotes’’) and specialist interest (also 

referred to as ‘‘s-Quotes’’) capable of 

execution in accordance with Exchange 

rules, at a single price, such price being 

the best price at which such orders and 

files can trade with the residual to the 

extent possible (‘‘clean-up price’’). 

The Exchange proposes to amend 

NYSE Rule 1000(d)(iii) to provide that 

during a sweep, the residual shall trade 

with all interest at each price capable of 

trading, before moving to the next price 

point. Accordingly, instead of a twoprice execution (at the Exchange best 

bid or offer and the sweep clean-up 

price), a sweeping order may trade at 

multiple prices. The sweep will be 

automatic and uninterrupted and will 

only stop when the sweeping order is 

filled, its limit price, if any, is reached, 

a LRP is reached, or, in the case of a 

Reg. NMS IOC order, trading at a 

particular price on the Exchange would 

require cancellation because the order 

cannot be routed to another market 

center. At each execution price during 

the sweep, Floor broker e-Quotes and 

limit orders on the Book trade on parity. 

Elected CAP–DI orders will have an 

opportunity to trade prior to the sweep 

moving to the next price. Specialist sQuotes yield to limit orders on the Book 

at each execution price and thereafter 

trade on parity with e-Quotes. 

The Exchange is proposing this 

change in response to customers who, 

while lauding the Exchange’s initial 

sweep functionality, which rewards 

liquidity providers—orders on the Book 

and in interest files—with price 

improvement, candidly asserted that 

they would manage their orders so as 

not to cause a sweep. Rather, they 

would send in orders in a manner so 

that they obtained the benefit of trading 

at each price available on the Exchange. 

Accordingly, the Exchange is 

proposing to amend NYSE Rules 

70.20(d)(i) and (ii), 123A.30(a), and 

1000(d)(iii) to reflect the redefined 

sweep functionality. 

Further, NYSE Rule 123A.30(a) has 

been reworded in order to clarify how 

and when CAP–DI orders participate in 

sweeps. Specifically, when an 

automatically executing order is 

sweeping the Book on the same side of 

CAP–DI orders, the orders will be 

elected at each execution price that is 

part of the sweep. To the extent that the 

order sweeping the book has additional 

volume, the elected same-side CAP–DI 

orders will not participate in a 

transaction at the executing price; 

rather, Exchange Systems will 

automatically and systemically unelect 

the CAP–DI orders in accordance with 

its terms. If, at the last execution price 

that is part of the sweep, the sweeping 

order is filled or unable to continue 

executing, and there is volume 

remaining on the Book or from contraside elected CAP–DI orders, then the 

same-side CAP–DI orders may 

participate in the final transaction. 

CAP–DI orders on the contra-side of 

an automatically executing order 

sweeping the Book are also elected at 

each execution price that is part of the 

sweep and participate at each of the 

execution prices if there is volume 

available on the Book or from CAP–DI 

orders on the same side of the market 

as the sweeping order. 

In addition, the Exchange is 

proposing a technical change to delete 

a repetitious sentence in NYSE Rule 

1000(d)(v) and move the remaining rule 

text into NYSE Rule 1000(d)(iv). 

Redefinition of Liquidity Replenishment 

Points (LRPs) 

NYSE Rule 1000(a)(iv) provides that 

automatic execution is not available 

when a LRP has been reached, and the 

order triggering the LRP has been 

executed to the extent possible at the 

LRP price. LRPs may be triggered by a 

sweep (i.e., the sweep LRP) or automatic 

executions that result in rapid price 

movement over a short period (i.e., the 

momentum LRP). 

Given the changes to the sweep 

functionality described above, and in 

recognition that LRPs as originally 

defined are complex and not easily 

understood, the Exchange is proposing 

to modify NYSE Rule 1000(a)(iv) to 

provide a single, simpler LRP. LRPs will 

be calculated by adding and subtracting 

a value to the security’s last sale price. 

The LRP values are based on an 

examination of trading data and vary 

based on the security’s NYSE average 

daily volume (‘‘ADV’’), price, and 

volatility. A range of values for each 

ADV and price category are available to 

provide the Exchange with sufficient 

flexibility to ensure that the goal of a 

LRP is met, without unduly impacting 

the availability of automatic executions 

in such security. The proposed LRP 

ranges are as follows: 

Price per share <$5 $5–9.99 $10–24.99 $25–49.99 $50–99.99 $100–

149.99 

$150–

199.99 

$200–

249.99 

$250–

1000.00 

ADV: 

< 500,000 shares 0.05 

0.10 

0.05 

0.10 

0.10 

0.25 

0.15 

0.35 

0.35 

0.75 

0.60 

1.25 

1.00 

2.00 

1,00 

2.00 

1.00 

2.00 

500,000–

3,999,999 ......... 0.05 

0.10 

0.05 

0.10 

0.10 

0.20 

0.10 

0.25 

0.25 

0.50 

0.50 

1.00 

1.00 

2.00 

1.00 

2.00 

1.00 

2.00 

≥ 4,000,000 

shares .............. 0.05 

0.10 

0.05 

0.10 

0.10 

0.20 

0.10 

0.25 

0.25 

0.50 

0.50 

1.00 

1.00 

2.00 

1.00 

2.00 

1.00 

2.00 

Initially, the lower values in each of 

the ranges will be used to calculate the 

LRPs. For example, for securities with 

an ADV of 500,000–3,999,999 shares, 

the LRP values will be as follows: 0.05 

for securities priced through $9.99; 0.10 

for securities priced from $10.00 

through 49.99; 0.25, for securities priced 

from $50.00 through $99.99; 0.50 for 

securities priced from $100.00 through 

149.99; and 1.00 for securities priced 

$150.00 or more. As the Exchange gains 

more experience in how these securities 

trade in the Hybrid Market, the higher 

value in a particular price category may 

be used instead. The values used to 

calculate LRPs and LRPs themselves 

will be disseminated by the Exchange. 

The value used to calculate the LRP’s 

range will not change. LRPs for a 

security will not be calculated until 

there is a trade on the Exchange; 

accordingly, if the security opens on a 

quote and there are no trades on the 

NYSE, LRPs will not be set. 

LRP’s are volatility controls and, as 

such, are meant to be triggered 

infrequently, when there has been a 

large price movement (based on a 

security’s typical trading characteristics) 

over a short period of time. If the price 

of the security stays within the LRP 

range, the LRP will not be triggered. If 


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Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Notices 57595 

21Automatic executions resume after an LRP has 

been reached: (i) Automatically in 5 seconds where 

the NYSE is not locked or crossed; (ii) by a manual 

trade; or (iii) by manually resuming autoquote. 

22ABS is being renamed ‘‘NYSE BondsSM’’

23See Hybrid Order, supra note 6. 

24 15 U.S.C. 78f(b). 

25 15 U.S.C. 78f(b)(5). 

26 15 U.S.C. 78k–1(a)(1). 

27The Commission notes that it has received one 

comment letter. See letter from George Rutherford 

daed September 10, 2006. 

the price moves to the LRP in a short 

period of time, automatic executions 

will pause for one manual trade, and 

will then resume, with a newly 

calculated LRP range. 

LRPs will be calculated automatically 

throughout the day, as follows: 

• At specified time intervals (e.g., 

every few minutes throughout the day), 

as the Exchange shall determine from 

time to time; 

• After a manual trade by the 

specialist; and 

• When automatic executions resume 

after an LRP has been reached.21

Initially, LRPs will be calculated 

every thirty seconds during the trading 

day. 

Further, the Exchange proposes to 

amend the time in which automatic 

executions and autoquote resume after 

an LRP is triggered, when the NYSE 

market is not locked or crossed. 

Currently, NYSE Rule 60(e)(ii)(C) 

provides that after an LRP is triggered, 

autoquote will resume as soon as 

possible or in no more than five 

seconds, provided the NYSE market is 

not locked or crossed. The Exchange 

proposes to amend this rule to provide 

that autoquote will resume in five to ten 

seconds. Initially, the ten second period 

will be used; as the Exchange gains 

experience in the effect of LRPs on the 

market in Hybrid, the time will be 

reduced to five seconds. 

In addition to NYSE Rules 1000(a)(iv) 

and 60(e)(ii)(C), the following rules have 

also been amended to reflect the 

changes discussed above: NYSE Rules 

60(e)(iii) and (iv), 72(j)(i) and (ii), and 

1000(c). 

Miscellaneous 

NYSE Rule 60(e) 

Currently, NYSE Rule 60(e)(iv)(c) 

provides, among other things, that when 

autoquote is suspended pursuant to a 

gap quote (NYSE Rule 60(e)(i)(A)), it 

will nevertheless continue to update the 

quote as specified therein. The 

Exchange is proposing to delete the 

reference to NYSE Rule 60(e)(i)(A) to 

correct this provision, as autoquote does 

not continue to update the quote when 

it has been gapped in accordance with 

Exchange procedures. Rather, in gap 

quote situations, autoquote is 

suspended on both sides of the market 

and resumes with a manual transaction 

or the publication of a non-gapped 

quote. 

NYSE Rule 72 

NYSE Rule 72 has been amended to 

remove the discussion of the priority 

and parity of residual interest at the 

momentum liquidity replenishment 

point to conform to the redefinition of 

LRPs as previously discussed herein. 

NYSE Rule 76 

NYSE Rule 76 has been amended to 

provide that the crossing requirement 

does not apply to automatic executions. 

This rule was designed originally to 

provide an opportunity for price 

improvement to buy and sell orders 

represented by the same member. Under 

the current rule, the member is required 

to clearly announce his or her offer at 

a price higher by the minimum variation 

than his or her bid before crossing such 

orders, to enable the Crowd to trade 

with the order at such bid or offer price, 

thereby providing price improvement to 

the order. NYSE Rule 76 does not apply 

to bonds traded in ABS,22 the 

Exchange’s automated execution facility 

for bond trading, as there is no verbal 

Crowd participation with respect to 

bond trading. Similarly, automatic 

executions via Direct + do not allow 

for verbal Crowd participation. The rule 

will continue to apply to auction market 

transactions. 

‘‘High-Priced Securities’’—NYSE Rules 

1000(a)(vi) and 60(e)(iv)(b)(i) 

The Exchange is proposing to redefine 

‘‘high-priced’’ securities from those 

trading above $300.00 to those trading 

above $1,000.00. Exchange rules 

provide that automatic executions will 

be unavailable in securities trading at 

$300.00 or more. However, a $300.00 

threshold encompasses securities with 

sufficient trading volume where 

automatic executions would be 

appropriate, such as Chicago Mercantile 

Exchange (‘‘CME’’). 

Implementation Schedule 

As noted above, the implementation 

of the Hybrid Market is underway. The 

next phase—Phase 3— is scheduled to 

be implemented in or about early 

October 2006. Approval of this filing 

and the changes discussed herein is 

necessary for the implementation of 

Phase 3. Phase 3 will include the 

features previously approved by the 

Hybrid Market implementation 

schedule 23 and the following additional 

changes: 

• Elimination of Direct+ suspension 

when a better bid or offer is displayed 

by another market center 

• Implementation of sweeps (as 

redefined herein); 

• Implementation of LRP (as 

redefined herein); 

• Implementation of new stop order 

processing (as discussed herein); 

• Exchange Rule 1002 (‘‘Availability 

of Automatic Execution Feature’’) will 

be available for all stocks through the 

close upon implementation of Phase 3 

of the Hybrid Market. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change, as amended, is 

consistent with Section 6(b) of the Act 24

in general, and furthers the objectives of 

Section 6(b)(5) 25 in particular, in that it 

is 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 Exchange believes 

the proposed rule change, as amended, 

is also designed to support the 

principles of Section 11A(a)(1) of the 

Act,26 in that it seeks to assure 

economically efficient execution of 

securities transactions, make it 

practicable for brokers to execute 

investors’ orders in the best market, and 

provide an opportunity for investors’

orders to be executed without the 

participation of a dealer. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change, as amended, 

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 

The Exchange has neither solicited 

nor received written comments on the 

proposed rule change, as amended.27

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 


jlentini on PROD1PC65 with NOTICES
57596 Federal Register / Vol. 71, No. 189 / Friday, September 29, 2006 / Notices 

28 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240. 19b–4. 

3See Amendment No. 1 which replaced the 

original filing in its entirety. 

4The staff has made minor changes to the 

Exchange’s summaries pursuant to the telephone 

conversation between Karen Lorentz, Managing 

Director, Competitive Analysis, NYSE, and Nataliya 

Cowen, Special Counsel, Division of Market 

Regulation, Commission, on September 15, 2006. 

5See Securities Exchange Act Release No. 54239 

(July 28, 2006); 71 FR 44328 (August 4, 2006). A 

Linkage Plan, dated August 1, 2006, reflecting 

Phlx’s inclusion as a Linkage Plan participant, was 

sent to the Commission on August 8, 2006. 

6 17 CFR 242.608. 

7The Linkage Plan participants have requested 

that the Commission grant appropriate exemptions 

from the ITS Plan to accommodate this result. See 

letter to Nancy Morris, Secretary, Commission, from 

Robert Hill, Chairman, ITS Operating Committee, 

dated September 18, 2006. 

(ii) as to which the Exchange consents, 

the Commission will: 

A. By order approve the proposed rule 

change, as amended, 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, as amended, 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 e-mail to rulecomments@sec.gov. Please include File 

Number SR–NYSE–2006–65 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NYSE–2006–65. 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. Copies of such filing will also be 

available for inspection and copying at 

the principal office of the 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–2006–65 and should be 

submitted on or before October 20, 

2006. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.28

Nancy M. Morris, 

Secretary. 

[FR Doc. 06–8397 Filed 9–27–06; 12:12 pm] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–54480; File No. SR–NYSE–

2006–72] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing and Order Granting Accelerated 

Approval to Proposed Rule Change, as 

Amended, Relating to Exchange to 

Exchange Billing Under the Linkage 

Plan 

September 21, 2006. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on August 

25, 2006, the New York Stock Exchange 

LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the Exchange. On 

September 7, 2006, the Exchange filed 

Amendment No. 1 to the proposed rule 

change.3 The Commission is publishing 

this notice to solicit comments on the 

proposed rule change, as amended, from 

interested persons, and is approving the 

proposal, as amended, on an accelerated 

basis. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to permit the 

Exchange to bill directly, and to accept 

direct billing from, other participants in 

the proposed ‘‘Plan for the Purpose of 

Creating and Operating an Intermarket 

Communications Linkage Pursuant to 

Section 11A(a)(3)(B) of the Securities 

Exchange Act of 1934’’ (‘‘Linkage Plan’’) 

that are unable to implement 

Sponsoring Member billing, as 

described herein, on October 1, 2006. 

This proposal does not require 

changes to the Exchange’s rule text. 

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 

NYSE 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 these statements 

may be examined at the places specified 

in Item III below. The NYSE has 

prepared summaries, set forth in 

Sections A, B, and C below, of the most 

significant aspects of such statements.4

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On July 17, 2006, the American Stock 

Exchange LLC, the Boston Stock 

Exchange, Inc., the Chicago Board 

Options Exchange, Incorporated, the 

Chicago Stock Exchange, Inc., The 

NASDAQ Stock Market LLC, the 

National Stock Exchange, the New York 

Stock Exchange LLC, and the NYSE 

Arca, Inc., executed and filed with the 

Commission the Linkage Plan. The 

Philadelphia Stock Exchange, Inc. 

(‘‘Phlx’’) subsequently executed the 

Linkage Plan on August 1, 2006.5 The 

Linkage Plan was filed with the 

Commission pursuant to Rule 608 of 

Regulation NMS under the Act.6 The 

purpose of the proposed Linkage Plan is 

to enable the Linkage Plan participants 

to act jointly in planning, developing, 

operating and regulating the NMS 

Linkage System (‘‘Linkage’’) that will 

electronically link the Linkage Plan 

Participant Markets to one another, as 

described in the Linkage Plan. The 

Linkage Plan participants have 

requested that the Commission approve 

the Linkage Plan by October 1, 2006. 

The Plan would run concurrently with 

the ITS Plan from October 1, 2006 until 

February 5, 2007.7 The Linkage Plan by 

its terms ends on June 30, 2007; 


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