Document ID: SEC-2006-1304-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca, Inc.
Posted Date: 2006-10-06T04:00Z

[Federal Register: October 6, 2006 (Volume 71, Number 194)]
[Notices]               
[Page 59179-59184]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06oc06-108]                         

[[Page 59179]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54549; File No. SR-NYSEArca-2006-59]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Order Granting Accelerated Approval to a Proposed Rule Change and 
Amendment No. 1 Thereto Relating To Adoption of Regulation NMS

September 29, 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 September 14, 2006, NYSE Arca, Inc., through its wholly owned 
subsidiary NYSE Arca Equities, Inc. (``NYSE Arca'' or the 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \3\ and Rule 19b-4 thereunder,\4\ a 
proposed rule change to amend its rules to conform them to the 
requirements of Regulation NMS under the Act (``Regulation NMS'').\5\ 
On September 29, 2006, the Exchange filed Amendment No. 1 to the 
proposed rule change.\6\ The proposed rule change, as amended, is 
described in Items I and II below, which Items have been prepared by 
the Exchange. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons and is approving the proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ 17 CFR 242.600 et seq.
    \6\ See Form 19b-4 dated September 28, 2006 (``Amendment No. 
1''). Amendment No. 1 replaces and supersedes the original filing in 
its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE Arca proposes to amend its rules to conform them to the 
requirements of the Commission's Regulation NMS,\7\ including Rule 611 
of Regulation NMS and Rule 610 of Regulation NMS. In addition, the 
Exchange proposes the adoption of other Regulation NMS order types, to 
utilize Regulation NMS terms, for example, ``Protected Bid,'' 
``Protected Offer'' and ``Protected Quotation,'' and to add an 
additional term, ``Protected Best Bid and Offer'' (``PBBO''), which 
mirrors the concept of the NBBO for Protected Quotes. Finally, the 
Exchange proposes that this rule filing shall become effective on 
February 5, 2007, the Trading Phase Date under Regulation NMS.\8\ The 
text of the proposed rule change is available at the Commission's 
Public Reference Room, at the Exchange, and on the Exchange's Web site 
at http://www.nysearca.com.

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    \7\ 17 CFR 242.600, et seq.
    \8\ The date the Commission has set for automated trading 
centers to be in compliance with Rule 611 of Regulation NMS is 
February 5, 2007 (``Trading Phase Date''). See Securities Exchange 
Act Release No. 53829 (May 18, 2006), 71 FR 30038 (May 24, 2006).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NYSE Arca 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 III below. NYSE Arca 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
    NYSE Arca is submitting this rule change to bring its rules into 
conformity with Regulation NMS.\9\ NYSE Arca proposes revisions to and 
the adoption of certain definitions to conform its rules to Regulation 
NMS. In addition, Rule 611 of Regulation NMS requires the Exchange to 
adopt certain order types that the Exchange proposes to begin utilizing 
upon the Trading Phase Date.
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    \9\ On June 9, 2005, the Commission issued its Regulation NMS 
Release. See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37495 (June 29, 2005). Regulation NMS adopted, among 
other things, the Order Protection Rule, requiring trading centers 
to establish, maintain and enforce written policies and procedures 
reasonably designed to prevent the execution of trades at prices 
inferior to protected quotations displayed by automated trading 
centers, subject to applicable exceptions. Regulation NMS also 
adopted an Access Rule, which: requires fair and non-discriminatory 
access to quotations; establishes a limit on access fees to 
harmonize the pricing of quotations across different trading 
centers; and requires NYSE Arca to adopt, maintain and enforce 
written rules that prohibit its members from engaging in a pattern 
or practice of displaying any quotations that lock or cross 
protected quotations disseminated pursuant to an effective National 
Market System Plan (``NMS Plan'').
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a. Trading Features of NYSE Arca and Rule 611 of Regulation NMS
    NYSE Arca proposes to adopt certain trading features to conform to 
Regulation NMS requirements, including:
i. Quotations and Other Regulation NMS Definitions
    The Exchange proposes to adopt certain Regulation NMS definitions 
for quotations such as ``Protected Bid,'' ``Protected Offer,'' ``Best 
Protected Bid,'' ``Best Protected Offer,'' and ``Protected Quotation.'' 
\10\ The Exchange also proposes to add the definition of ``Protected 
Best Bid and Offer'' (``PBBO'') \11\ to distinguish Protected NBBO 
quotes in order to satisfy Rule 611 of Regulation NMS. The terms 
``Protected Bid,'' \12\ ``Protected Offer'' \13\ and ``Protected 
Quotation'' \14\ refer to automated quotations in NMS securities \15\ 
that are displayed by ``Trading Centers,'' disseminated pursuant to an 
effective national market system plan, and which are the best bid, 
offer or both bid and offer, respectively, of a national securities 
exchange or a national securities association.\16\ The terms ``Best 
Protected Bid,'' ``Best Protected Offer'' will replace the references 
to the national best bid and national best offer for all automated 
quotations, and ``Protected Best Bid and Offer'' (``PBBO'') \17\ will 
replace the references to the NBBO for all automated quotations.
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    \10\ See proposed NYSE Arca Rule 1.1(dd).
    \11\ See proposed NYSE Arca Rule 1.1(eee).
    \12\ 17 CFR 242.600(b)(57).
    \13\ 17 CFR 242.600(b)(57).
    \14\ 17 CFR 242.600(b)(58).
    \15\ As defined in Rule 600(b)(3) of Regulation NMS. 17 CFR 
242.600(b)(3).
    \16\ See proposed NYSE Arca Rule 1.1(eee).
    \17\ See proposed NYSE Arca Rule 1.1(dd).
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    The Exchange will also utilize the terms ``Automated Trading 
Center,'' \18\ ``Automated Quotation,'' \19\ and ``Manual Quotation'' 
\20\ as defined by Regulation NMS.\21\ A ``Trading Center'' includes 
not only Exchange and SRO trading facilities, but also Automated 
Trading Systems, exchange and OTC Market Makers and any other broker/
dealer that internalizes or crosses orders.\22\
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    \18\ 17 CFR 242.600(b)(4).
    \19\ 17 CFR 242.600(b)(3).
    \20\ 17 CFR 242.600(b)(37).
    \21\ See proposed NYSE Arca Rule 1(eee).
    \22\ See proposed NYSE Arca Rule 1.1(ggg).
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    The Exchange also proposes other Regulation NMS terms including 
``Effective National Market System Plan,'' and ``Regular Trading 
Hours,'' \23\ both of which terms shall have the meanings set forth in 
Rule 600(b) of Regulation NMS, and ``Trade-Through,'' \24\ which shall 
mean the

[[Page 59180]]

purchase or sale of an NMS stock during regular trading hours, either 
as principal or agent, at a price that is lower than a Protected Bid or 
higher than a Protected Offer.
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    \23\ See proposed NYSE Arca Rule 1.1(hhh).
    \24\ See proposed NYSE Arca Rule 1.1(fff).
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ii. Order Routing
    Consistent with the adoption of the Order Protection Rule, NYSE 
Arca proposes to clarify how certain of its existing order types will 
function in the Regulation NMS environment, including the Limit, Inside 
Limit, Market, Cross, and Q Orders, as explained further below. The 
Exchange also proposes additional clarity on how Auction functions will 
work within the Regulation NMS environment. For Inside Limit, Pegged 
and Market orders, the rules will continue to provide that they shall 
not be executed outside of the NBBO.\25\
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    \25\ See NYSE Arca Rules 7.31(a), (d) and (cc).
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Limit Orders
    Limit Orders, Reserve Limit Orders, and Discretion Limit Orders, 
will be routed to Protected Quotations, but not to Manual Quotations. 
These limit orders may lock, cross, and trade-through a Manual 
Quotation without a requirement to route away.\26\
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    \26\ See proposed NYSE Arca Rule 7.31(b)(1); proposed NYSE Arca 
Rule 7.31(h)(3)(C); and proposed NYSE Arca Rule 7.31(h)(2)(B).
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    Post No Preference (``PNP'') Orders and PNP Directed Orders will 
never route away and will be posted in the NYSE Arca book if partially 
executed on the Exchange. PNP Orders may lock, cross or trade-through a 
Manual Quotation without a requirement to route.\27\
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    \27\ See proposed NYSE Arca Rule 7.31(w).
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    Immediate or Cancel (``IOC'') Orders will never route away. IOC 
Orders will be permitted to trade-through a Manual Quotation.\28\
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    \28\ See proposed NYSE Arca Rule 7.31(e)(3).
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    NOW Orders if routed away will be routed to Protected 
Quotations.\29\ When eligible, Pegged Limit Orders will be routed to 
Protected Quotations and Manual Quotations representing (and pegged off 
of) the NBBO.\30\
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    \29\ See proposed NYSE Arca Rule 7.31(v).
    \30\ See proposed NYSE Arca Rule 7.37.
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    Intermarket Sweep Orders with an Immediate-or-Cancel designation 
(``ISO IOC'') and ISO Post no Preference (``ISO PNP'') Limit Orders 
will never be routed to either an Automated or Manual Quotation and may 
lock, cross and trade-through both Manual Quotations and Protected 
Quotations without routing if the User has complied with proposed NYSE 
Arca Rule 7.37(e)(3)(C).\31\ These orders will require specific tape 
indicators if executed under the exemptions provided in Rule 611(b) of 
Regulation NMS.
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    \31\ See proposed NYSE Arca Rule 7.37(g)(2) and Proposed NYSE 
Arca Rule 7.31(w).
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Inside Limit Orders
    Inside Limit and Pegged Orders will be routed to Protected 
Quotations representing the NBBO.\32\ PNP Inside Limit and IOC Inside 
Limit Orders will never be routed to either Automated or Manual 
Quotations. PNP Inside Limit Orders, however, cannot lock or cross 
Manual Quotations.\33\ NOW Inside Limit Orders will be routed to 
Protected Quotations.\34\
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    \32\ See proposed NYSE Arca Rule 7.37(d)(2)(A).
    \33\ See proposed NYSE Arca Rule 7.31(w).
    \34\ See proposed NYSE Arca Rule 7.31(v).
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Market Orders
    When eligible, Market Orders will be routed to both Automated and 
Manual Quotations.\35\
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    \35\ See proposed NYSE Arca Rule 7.37(d)(2)(A).
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Cross Orders
    Cross Orders, including Cross and Post Orders, will be routed to a 
Protected Quotation if needed,\36\ but each will be identified as an 
ISO IOC sent to the Protected Quotation market.\37\ A Cross Order may 
trade-through a Manual Quotation without routing.\38\ A Cross and Post 
Order may lock and cross Manual Quotations, and may trade-through 
Manual Quotations.\39\ Unless marked ISO, however, the Cross Order and 
the Cross and Post Orders may not trade-through Protected 
Quotations.\40\ PNP and IOC Crosses may trade-through Manual 
Quotations.\41\
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    \36\ See proposed NYSE Arca Rule 7.31(s)(2).
    \37\ See proposed NYSE Arca Rule 7.31(s)(6).
    \38\ See proposed NYSE Arca Rule 7.31(s).
    \39\ See proposed NYSE Arca Rule 7.31(s)(3).
    \40\ See proposed NYSE Arca Rule 7.31(s)(3) and (4).
    \41\ See proposed NYSE Arca Rule 7.31(s)(4).
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Q Orders
    All Q Orders will never be routed, but each may lock, cross and 
trade-through Manual Quotations.\42\
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    \42\ See proposed NYSE Arca Rule 7.31(k).
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iii. New Limit Order Types
    The Exchange proposes to add new order types that will be 
consistent with Regulation NMS. The new order types are ``Intermarket 
Sweep Orders'' or (``ISO''),\43\ which is a limit order for an NMS 
stock that meets the requirements of Rule 600(b)(30) of Regulation 
NMS,\44\ an ``ISO IOC Order,'' which contains the attributes of the ISO 
order, but which will provide that any remaining balance in the order 
not executed would be automatically cancelled,\45\ an ``ISO Order 
designated as PNP,'' which will provide for limit orders that are to be 
executed in whole or in part at the Exchange, but which may lock and 
cross and trade-through Manual and Protected Quotations but only if the 
User has complied with proposed NYSE Arca Rule 7.37(e)(3)(C),\46\ ``ISO 
IOC Cross'' orders, which may trade-through Protected Quotations,\47\ 
and ``ISO PNP Cross and Post'' orders, which may trade-through 
Protected Quotations, and may lock and cross any quotes, but only if 
the User has complied with proposed NYSE Arca Rule 7.37(e)(3)(C).'' 
\48\
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    \43\ See proposed NYSE Arca Rule 7.31(jj).
    \44\ 17 CFR 242.600(b)(3).
    \45\ See proposed NYSE Arca Rule 7.37(g)(2).
    \46\ See proposed NYSE Arca Rule 7.31(w).
    \47\ See proposed NYSE Arca Rule 7.31(s)(5)(A).
    \48\ See proposed NYSE Arca Rule 7.31(s)(5)(B).
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iv. Auctions
    NYSE Arca Rule 7.35 provides for certain Auction sessions, 
including the Opening, Market Order, Halt and Closing Auctions. For 
purposes of Regulation NMS, the Exchange will not route orders 
designated for these Auctions to any away markets. In addition, orders 
designated for these Auctions may trade-through any away market 
pursuant to the exemptions in Rule 611 of Regulation NMS,\49\ if the 
transaction that constituted the trade-through was a single-priced 
opening, reopening, or closing transaction by the trading center. Any 
trade-through execution will be designated with the appropriate trade 
modifier as defined by the transaction reporting plans.
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    \49\ See proposed NYSE Arca Rule 7.35(h).
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b. Exceptions to Locking/Crossing and Trade-Throughs
    The Exchange proposes specific trade-through restrictions, 
including how orders are handled at NYSE Arca or transmitted to another 
Trading Center based upon the Order Protection Rule. The Exchange's 
systems will prevent the execution of all or a part of an inbound order 
if the execution of all or a part of the order would violate the Rule 
611 of Regulation NMS. NYSE Arca proposes the following exceptions:
    (1) The ``Locking Quotation'' or ``Crossing Quotation'' \50\ was 
displayed at a time when the Trading Center displaying the locked or 
crossed quotation was experiencing a failure, material delay, or 
malfunction of its systems or equipment.\51\ This is known as the 
``self-help exception,'' discussed further below. The term ``Crossing

[[Page 59181]]

Quotation'' \52\ will be defined as the display of a bid for an NMS 
stock during regular trading hours at a price that is higher than the 
displayed offer for such NMS stock previously disseminated pursuant to 
an effective national market system plan, or the display of an offer 
for an NMS stock during regular trading hours at a price that is lower 
than the displayed price of a bid for such NMS stock previously 
disseminated pursuant to an effective national market system plan. The 
term ``Locking Quotation'' \53\ will be defined as the display of a bid 
for an NMS stock during regular trading hours at a price that equals 
the displayed price of an offer for such NMS stock previously 
disseminated pursuant to an effective national market system plan, or 
the display of an offer for an NMS stock during regular trading hours 
at a price that equals the displayed price of a bid for such NMS stock 
previously disseminated pursuant to an effective national market system 
plan.
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    \50\ See proposed NYSE Arca Rule 7.37(e).
    \51\ See proposed NYSE Arca Rule 7.37(e)(3)(A).
    \52\ See proposed NYSE Arca Rule 7.37(e)(1)(A).
    \53\ See proposed NYSE Arca Rule 7.37(e)(1)(B).
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    (2) The Crossing Quotation was displayed at a time when a Protected 
Bid was higher than a Protected Offer in the NMS stock.\54\
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    \54\ See proposed NYSE Arca Rule 7.37(e)(3)(B).
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    (3) The Locking or Crossing Quotation was an Automated Quotation, 
and the User of the Exchange displaying such Automated Quotation 
simultaneously routed an ISO to execute against the full displayed size 
of any locked or crossed Protected Quotation.\55\
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    \55\ See proposed NYSE Arca Rule 7.37(e)(3)(C).
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    NYSE Arca believes that its disseminated quotations would 
constitute Automated Quotations under the definition set out in Rule 
600(b)(3) of Regulation NMS,\56\ and for that reason has not submitted 
rules regarding Manual Quotations of its participants.
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    \56\ The definition of automated trading center in Rule 
600(b)(4) of Regulation NMS, 17 CFR 242.600(b)(4), requires, among 
other things, that a trading center (1) implement such systems, 
procedures and rules as are necessary to render it capable of 
meeting the requirements for automated quotations, as defined in 
Rule 600(b)(3) of Regulation NMS, 17 CFR 242.600(b)(3); and (2) 
immediately identify its quotations as manual whenever it has reason 
to believe it is not capable of displaying automated quotations. The 
definition of automated quotation requires, among other things, that 
a trading center provide an immediate response to incoming IOC 
orders and immediately update its quotations. NYSE Arca is designed 
to accept IOC orders, to immediately and automatically execute an 
IOC order against the displayed BBO up to its full size; to 
immediately and automatically cancel any unexecuted portion of the 
IOC order without routing the order elsewhere; to immediately and 
automatically transmit a response to the order-sending participant 
indicating the action taken on the order; and to immediately and 
automatically update the BBO to reflect any change that occurred as 
a result of the execution.
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i. Additional Exceptions
Self Help
    The Exchange proposes to utilize the ``self-help'' exception to any 
trade-through of a Protected Quotation displayed by a Trading Center 
that is experiencing a failure, material delay, or malfunction of its 
systems or equipment.\57\ The Exchange will be able to ignore another 
Trading Center's bid and offer if the other Trading Center has 
repeatedly failed to respond within one second to an incoming IOC order 
after adjusting for order transmission time. In these instances, 
Protected Quotations may be bypassed by: (a) notifying the non-
responding Trading Center immediately after (or at the same time as) 
electing self-help; \58\ (b) assessing whether the cause of the problem 
lies with the Exchange's own systems and, if so, taking immediate steps 
to resolve the problem; and (c) developing objective parameters for 
monitoring and utilizing this exception.
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    \57\ See proposed NYSE Arca Rule 7.37(f)(1).
    \58\ See proposed NYSE Arca Rule 7.37(f)(1)(A).
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    For purposes of utilizing self-help when effecting a trade-through 
of a Protected Quotation displayed by a Trading Center, NYSE Arca 
proposes to use mechanisms such as e-mail or other mechanisms that may 
be determined between Trading Centers. Generally, the NYSE Arca Systems 
procedures will allow for the disregard of Protected Quotations of a 
market against which the Exchange has elected self-help, and all trades 
executed under this exception will be marked with the appropriate 
identifier specified by the relevant NMS Plan.
    Should NYSE Arca determine that the problem lies within its own 
system or with its connection to the other Trading Center, NYSE Arca 
shall no longer rely on the self-help exception and shall notify the 
other Trading Center that the Exchange is no longer claiming the 
exception.\59\
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    \59\ See proposed NYSE Arca Rule 7.37(f)(1)(B).
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Intermarket Sweep Order Exception
    The Exchange proposes to add new a new rule to provide that ISOs 
may, by their definition, trade-through Protected Quotations when the 
Exchange has simultaneously routed an ISO to execute against the full 
displayed size of that Protected Quotation.\60\ NYSE Arca will accept 
ISO orders to be executed against orders at the Exchange's Protected 
Quotation without regard to whether the execution will trade-through 
another market's Protected Quotation under the assumption that the ISO 
being routed has already satisfied the Protected Quotations of other 
Trading Centers. The NYSE Arca System may also lock or cross an away 
Protected Quotation if the System has first routed an order to that 
quotation and all better priced quotations for their full displayed 
size.
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    \60\ See proposed NYSE Arca Rule 7.37(g)(1).
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    The Exchange proposes to add a new rule to provide that if an ISO 
is marked as ``immediate or cancel,'' any remaining balance in the 
order will be automatically cancelled.\61\ If an ISO is not marked as 
``immediate or cancel,'' any remaining balance in the order would be 
displayed by the Exchange without regard to whether that display would 
lock or cross another market center, only if the participant routing 
the order has already sent an order to satisfy the quotations of other 
markets so that the display of the order would not lock or cross those 
markets.
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    \61\ See proposed NYSE Arca Rule 7.37(g)(2).
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Single-Price Openings, Reopenings, and Closing Transactions
    The Exchange proposes to add a new rule to provide that a 
transaction that constituted the trade-through is excepted from the 
Order Protection Rule if it was a single-priced opening, reopening, or 
closing transaction by the Exchange.\62\ NYSE Arca will conduct a 
formalized and transparent process for executing orders during 
reopening after a trading halt that involves the queuing and ultimate 
execution of multiple orders at a single equilibrium price.\63\
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    \62\ See proposed NYSE Arca Rule 7.37(g)(3).
    \63\ See proposed NYSE Arca Rule 7.35(f).
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Benchmark Trades
    The Exchange proposes to add a new rule to provide for the 
execution of volume-weighted average price (``VWAP'') orders, as well 
as other types of orders that are not priced with reference to the 
quoted price of the NMS stock at the time of execution and for which 
the material terms were not reasonably available at the time the 
commitment to execute the order was made. Benchmark Trades will not be 
allowed to trade-through the NYSE Arca Book.\64\
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    \64\ See proposed NYSE Arca Rule 7.37(g)(4).
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Stopped Orders
    The Exchange proposes to add a new rule to provide that an 
exception for stopped orders will apply when the price of the execution 
of the stopped order was lower (for a buy order) than the best 
Protected Bid at the time of execution, or was higher (for a sell 
order) than the best Protected Offer at the time of execution. This 
exception is contingent upon the User having agreed

[[Page 59182]]

to the stop price for each order. Stopped Orders will not be allowed to 
trade-through the NYSE Arca Book.\65 \
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    \65\ See proposed NYSE Arca Rule 7.37(g)(5).
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Transactions Other Than ``Regular-Way'' Contracts
    The Exchange proposes to add a new rule to provide that 
transactions that are executed other than pursuant to standardized 
terms and conditions, such as transactions that have extended 
settlement terms, also are excepted from the Order Protection Rule.\66\
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    \66\ See proposed NYSE Arca Rule 7.37(g)(6).
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ii. Exemptions from 611(d) of Regulation NMS
    The Commission exempted from the provisions of Rule 611 of 
Regulation NMS trade-throughs \67\ caused by the execution of an order 
involving one or more NMS stocks that are components of a qualified 
contingent trade.\68\ The Exchange therefore proposes to adopt that 
same exemption as a part of its Rules.
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    \67\ 17 CFR 242.611(d).
    \68\ See Securities Exchange Act Release No. 34-54389 (August 
31, 2006).
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c. Locked/Crossed Markets
    In order to satisfy NMS restrictions on locked and crossed markets, 
NYSE Arca has proposed additional rules regarding Crossing Quotations 
and Locking Quotations. The Exchange addresses intentional locks/
crosses by requiring that all locks/crosses of Protected Quotations be 
reasonably avoided, and prohibiting a pattern or practice of displaying 
any quotations that lock or cross a Protected Quotation pursuant to an 
effective national market system plan. There is no restriction on the 
display of automated quotations that lock or cross Manual Quotations. 
Inevitably, unintentional locks/crosses will continue to occur even 
after adoption of the Rule, often because of rapid updating of 
quotations in active stocks.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\69\ in general, and furthers the objectives of Section 6(b)(5) 
\70\ 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, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system.
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    \69\ 15 U.S.C. 78f(b).
    \70\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule change, as amended, 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 rule-comments@sec.gov. Please include 

File Number SR-NYSEArca-2006-59 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-NYSEArca-2006-59. 
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 the 
filing also will be available for inspection and copying at the 
principal office of NYSE Arca. 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-NYSEArca-2006-59 and should be submitted on or before 
October 27, 2006.

IV. Discussion of Commission Findings and Order Granting Accelerated 
Approval of Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange and, in particular, the requirements of Section 6 
of the Act \71\ and the rules and regulations thereunder applicable to 
a national securities exchange.\72\ The Commission finds that the 
proposed rule change, as amended, is consistent with Section 6(b)(5) of 
the Act \73\ in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
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    \71\ 15 U.S.C. 78f.
    \72\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \73\ 15 U.S.C. 78f(b)(5).
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    Pursuant to Section 19(b)(2) of the Act,\74\ the Commission may not 
approve any proposed rule change, or amendment thereto, prior to the 
thirtieth day after the date of publication of the notice thereof, 
unless the Commission finds good cause for so doing. As set forth 
below, the Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after publishing notice thereof in 
the Federal Register pursuant to Section 19(b)(2) of the Act.\75\ The 
proposed amendments to NYSE Arca's rules are substantially similar to 
rules of other exchanges that were designed to comply with Regulation 
NMS and have been published for comment and approved by the 
Commission.\76\ In this regard, as

[[Page 59183]]

discussed more fully below, the Commission believes that accelerating 
approval of these rules is appropriate because the proposed rule 
changes do not raise any new or novel issues and that such action is 
necessary for the maintenance of fair and orderly markets and the 
protection of investors, in that it will help ensure timely compliance 
with Regulation NMS.
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    \74\ 15 U.S.C. 78s(b)(2).
    \75\ Id.
    \76\ See Securities Exchange Act Release No. 54391 (August 31, 
2006), 71 FR 52836 (September 7, 2006) (SR-NSX-2006-08); Securities 
Exchange Act Release No. 54155 (July 14, 2006), 71 FR 41291 (July 
20, 2006) (SR-NASDAQ-2006-01); and Securities Exchange Act Release 
No. 54528 (September 28, 2006) (SR-ISE-2006-48).
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A. Order Types, Routing and Execution

    NYSE Arca has proposed to revise its rules governing order types 
and modifiers, order routing and order execution \77\ to comply with 
the requirements of Regulation NMS, and specifically, to prevent trade-
throughs in accordance with the Rule 611 of Regulation NMS \78\ and to 
avoid locked and crossed markets. In addition, NYSE Arca's rules are 
assume that its disseminated quotations will constitute automated 
quotations under Rule 600(b)(3) of Regulation NMS.\79\
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    \77\ See proposed changes to NYSE Arca Rules 7.31 and 7.37.
    \78\ 17 CFR 242.611.
    \79\ 17 CFR 242.600(b)(3). See note 56, infra, and accompanying 
text.
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    NYSE Arca has proposed to implement routing options that it 
believes are consistent with Rules 610 and 611 of Regulation NMS.\80\ 
Specifically, the Commission notes that NYSE Arca represents that its 
systems will prevent the execution of all or part of an inbound order 
if the execution of all or part of the order would violate Rule 611 of 
Regulation NMS.\81\ The Commission notes that the proposed NYSE Arca 
rules would provide exceptions to the general prohibition on trade-
throughs consistent with Rule 611(b) of Regulation NMS. For example, 
these proposed amendments would include permitting users to designate 
orders meeting the requirement of Rule 600(b)(30) of Regulation NMS 
\82\ as intermarket sweep orders and accepting intermarket sweep 
orders, which would allow orders so designated to be automatically 
matched and executed without reference to protected quotations at other 
trading centers.\83\ In addition, the Commission notes that the 
proposed NYSE Arca rules would permit use of the ``self help'' 
exception under Rule 611(b)(1) of Regulation NMS \84\ when another 
trading center is experiencing a failure, material delay, or 
malfunction of its systems or equipment.\85\ The proposed rules include 
policies and procedures for communicating to other trading centers 
about such a situation.\86\ The Commission notes that these proposed 
exceptions to Rule 611 of Regulation NMS comply with the requirements 
of Regulation NMS.\87\ The Commission further notes that, pursuant to 
the proposed changes to NYSE Arca Rule 7.40, any executions in the NYSE 
Arca Marketplace that occur through a protected quotation shall be 
marked with the appropriate designation as defined by the transaction 
reporting plans.\88\ Finally, the Commission notes the proposed rules 
are designed to prohibit locked and crossed markets.\89\
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    \80\ See proposed changes to NYSE Arca Rules 7.31, 7.35 and 
7.37. For NYSE Arca's proposed exceptions see proposed NYSE Arca 
Rules 7.35(f), 7.37(e)(3), 7.37(f)(1), 7.37(g) and 7.37(h).
    \81\ See Section II.A.1.b., infra. The Commission notes that, in 
general, proposed NYSE Arca Rule 7.37 will require that, for an 
execution to occur on NYSE Arca the price must be equal to or better 
than (1) the PBBO, in the case of a Limit Order or a Q Order or (2) 
the NBBO, in the case of an Inside Limit Order, a Pegged Order, or a 
Market Order.
    \82\ 17 CFR 242.600(b)(30).
    \83\ See proposed NYSE Arca Rule 7.37(g). See also proposed NYSE 
Arca Rules 7.37(b)(2)(B)(iii) and 7.31(gg).
    \84\ 17 CFR 242.611(b).
    \85\ See proposed NYSE Arca Rule 7.37(f) and Section 
II.A.1.i.(Self Help), infra.
    \86\ See proposed NYSE Arca Rule 7.37(f)(1)(A)-(B). See also 
Section II.A.1.b.1., infra, for a discussion of the policies and 
procedures that NYSE Arca will utilize.
    \87\ See 17 CFR 242.611. See also Securities Exchange Act 
Release No. 54389 (August 31, 2006), 71 FR 52829 (September 7, 
2006).
    \88\ See proposed NYSE Arca Rule 7.40.
    \89\ See proposed NYSE Arca Rule 7.37(e).
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    The Commission finds that these proposed changes are consistent 
with the Act. The Commission also finds good cause to accelerate 
approval of these changes prior to the thirtieth day after publication 
in the Federal Register. The Commission believes that the proposed 
amendments to NYSE Arca's rules governing order types, routing and 
execution are designed to comply with Regulation NMS and are 
substantially similar to rules of other exchanges that were designed to 
comply with Regulation NMS and that have been published for comment and 
approved by the Commission.\90\ The Commission believes, therefore, 
that the proposed rule changes do not raise new regulatory issues.
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    \90\ See note 76, infra, and accompanying text.
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B. Definitions and Technical Changes

    NYSE Arca proposes to amend certain of its defined terms to make 
them consistent with Regulation NMS and to add other defined terms 
consistent with Regulation NMS.\91\ In particular, the Commission notes 
that NYSE Arca proposes to adopt definitions for NMS Stock, Protected 
Bid, Protected Offer, Protected Quotation, Trade-Through, Trading 
Center, Effective National Market System Plan and Regular Trading Hours 
that are intended to be consistent with Regulation NMS and necessary 
for NYSE Arca's other proposed rule changes that are designed to enable 
the Exchange to comply with Regulation NMS.\92\ Further, NYSE Arca 
proposes to make other technical, non-substantive changes, such as 
renumbering its rule sections, that are consistent with the other 
changes proposed in this filing. The Commission finds good cause to 
accelerate approval of these changes prior to the thirtieth day after 
publication in the Federal Register. The Commission believes that these 
rules are appropriate and consistent with the Act, and that 
accelerating approval of these rules is appropriate because they do not 
raise any new regulatory issues.
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    \91\ See proposed changes to NYSE Arca Rule 1.1.
    \92\ See note 9, infra.
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C. Compliance Dates and Effectiveness of Proposed Rules

    The Exchange represents that the purpose of this proposed rule 
change is to bring its rules into conformity with Regulation NMS.\93\ 
The Commission notes that February 5, 2007 is the Trading Phase Date 
and the final date for full operation of Regulation NMS-compliance 
trading systems of all automated trading centers, including SRO trading 
facilities that intend to qualify their quotations for trade-through 
protection under Rule 611 of Regulation NMS during the Pilot Stock 
Phase and All Stock Phase.\94\ The Commission also notes that the 
Exchange proposes to implement these proposed rules on the Trading 
Phase Date.\95\ The Commission further finds good cause to accelerate 
approval of these proposed rule changes prior to the thirtieth day 
after publication in the Federal Register, because the Commission 
believes that doing so should help to ensure that the appropriate NYSE 
Arca rules are in place at the time that Regulation NMS compliance is 
required.
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    \93\ See Sections I and II.A.1., infra.
    \94\ Securities Exchange Act Release No. 58329 (May 18, 2006), 
71 FR 30038 (May 24, 2006). See supra note 8.
    \95\ See Section I, infra.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
the rules and regulations thereunder, and finds that good cause exists 
to accelerate approval of the proposed rule change, pursuant to Section 
19(b)(2) of the Act.\96\
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    \96\ 15 U.S.C. 78s(b)(1).

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[[Page 59184]]

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\97\ that the proposed rule change (File No. SR-NYSEArca-2006-59), 
as amended by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \97\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\98\
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    \98\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-16582 Filed 10-5-06; 8:45 am]

BILLING CODE 8011-01-P