Document ID: SEC-2008-0752-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-05-30T04:00Z

[Federal Register: May 30, 2008 (Volume 73, Number 105)]
[Notices]               
[Page 31174-31177]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30my08-101]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57862; File No. SR-NYSE-2008-41]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Exchange Rule 15 (Pre-Opening Indications) and Exchange Rule 
123C (Market on the Close Policy and Expiration Procedures)

May 23, 2008.
    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 May 16, 2008, 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 substantially prepared by the Exchange. 
The Exchange has designated the proposed rule change as a ``non-
controversial'' rule change pursuant to section 19(b)(3)(A) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposed rule 
change effective upon filing with the Commission. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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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)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Exchange Rule 15 (Pre-Opening 
Indications) and Exchange Rule 123C (Market On The Close Policy And 
Expiration Procedures) to allow Exchange systems to disseminate a data 
feed of real-time order imbalances that accumulate prior to the opening 
of trading on the Exchange and prior to the close of trading on the 
Exchange. The text of the proposed rule change is available at http://
www.nyse.com, the Exchange, and 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, NYSE included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed

[[Page 31175]]

rule change. The text of these statements may be examined at the places 
specified in Item IV below. NYSE 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
    Currently NYSE OpenBook is a packaged suite of data feed products. 
In addition to the current NYSE OpenBook data feed (``NYSE OpenBook 
Realtime''), for no additional charge, the Exchange makes available to 
NYSE OpenBook recipients a separate data feed containing NYSE 
quotations (``NYSE BestQuote'').\5\ NYSE BestQuote allows customers to 
see additional market interest that is not displayed in the NYSE limit 
order book and that, therefore, is not available in NYSE OpenBook.
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    \5\ The Exchange added NYSE BestQuote to the NYSE OpenBook 
Realtime package in October 2006. See Securities Exchange Act 
Release No. 54594 (October 12, 2006), 71 FR 61819 (October 19, 2006) 
(SR-NYSE-2006-81).
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    Pursuant to a separate filing, the Exchange intends to add to NYSE 
OpenBook a new category of information regarding order imbalances prior 
to the market opening and closing auctions (``Order Imbalance 
Information'').\6\ Order Imbalance Information is a data feed of real-
time order imbalances that accumulate prior to the opening of trading 
on the Exchange and prior to the close of trading on the Exchange. 
Through this filing, the NYSE seeks to include Order Imbalance 
Information as supplemental information that may be disseminated by 
Exchange systems prior to the opening and closing transaction.
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    \6\ See Securities Exchange Act Release No. 57861, (May 23, 
2008) (SR-NYSE-2008-42).
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Background Publication of Order Imbalance Information Prior to Open and 
Close
    On December 20, 2007, the NYSE amended Exchange Rule 15 to re-
establish procedures for the publication of pre-opening price 
information, according to the framework established by the national 
market system plan (``Linkage Plan'').\7\ The rule change was sought by 
the Exchange in response to customer and market participant requests 
for the information.
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    \7\ See Securities Exchange Act Release No. 57003 (December 20, 
2007), 72 FR 73949 (December 28, 2007) (SR-NYSE-2007-112). The 
Linkage Plan became effective on October 1, 2006 and operated 
concurrently with the existing Intermarket Trading System (``ITS'') 
Plan until March 5, 2007, at which time the ITS Plan terminated and 
SEC Rule 611 (the Order Protection Rule) of Reg. NMS became 
operative. See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005). The Linkage Plan terminated on 
June 30, 2007.
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Exchange Rule 15
    Currently, pursuant to Exchange Rule 15 the specialist publishes a 
pre-opening price indication whenever the specialist, in arranging the 
opening transaction in a subject security, anticipates that the price 
of the opening transaction will be at a price that is different from 
the previous day's closing price on the NYSE by more than the 
``applicable price change.'' The applicable price is generally based on 
the NYSE closing price. Exchange Rule 15 provides five price groupings 
that establish the applicable price change parameters as follows:

------------------------------------------------------------------------
                                                        Applicable price
                Exchange closing price                   change  (more
                                                             than)
------------------------------------------------------------------------
Under $20.00.........................................              $0.50
$20-$49.99...........................................               1.00
$50.00-$99.99........................................               2.00
$100-$500............................................               5.00
Above $500...........................................               1.5%
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    Exchange Rule 15 sets forth a different method for determining pre-
opening indications in American Depositary Receipts (``ADRs'').\8\ 
Where the trading day of the underlying security in the primary foreign 
market concludes after trading on the NYSE for the previous day has 
ended, the specialists, when arranging an opening transaction on the 
NYSE, uses the closing price of the primary foreign market of the 
underlying security to determine whether such opening transaction 
represents a change of more than the ``applicable price change.'' In 
instances where the underlying security of an ADR is still trading on 
its primary foreign market at the time the specialist is arranging the 
opening of such ADR on the NYSE, a specialist is required to look at 
the last sale price of the underlying security in the primary foreign 
market and issue a pre-opening indication if the anticipated opening 
price of the ADR is not on parity with the last sale price of the 
underlying security. The pre-opening indication is based on the change 
in parity between the anticipated opening price of the ADR and the last 
sale price of the underlying security on the primary foreign market.
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    \8\ See the NYSE glossary, which defines an ADR as ``[a] receipt 
that is issued by a U.S. depository bank which represents shares of 
a foreign corporation held by the bank. * * * ADRs are quoted in 
U.S. dollars and trade just like any other stock. * * *''
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Exchange Rule 123C
    Rule 123C \9\ (Market on the Close Policy and Expiration 
Procedures) contains requirements with respect to operation of the 
Exchange's market concerning market-on-close (``MOC'') and limit-on-
close (``LOC'') orders as well as order entry and imbalance publication 
requirements. Rule 123C defines MOC and LOC orders. A MOC order is a 
market order that is to be executed in its entirety at the closing 
price. If not executed due to a trading halt or because of its terms, 
(e.g., buy minus or sell plus), this type of order will be cancelled.
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    \9\ The Exchange's Market-On-Close/Limit-On-Close Policy has 
been codified as Rule 123C. See Securities Exchange Act Release No. 
46579 (October 1, 2002), 67 FR 63004 (October 9, 2002) (SR-NYSE-
2002-31).
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    Rule 123C defines a LOC order as one that is entered for execution 
at the closing price, provided that the closing price is at or within 
the limit specified. LOC orders are prioritized on the specialist's 
book by time of entry and go behind all other orders on the specialist 
book at that price regardless of when such other orders are received. 
LOC orders with prices that are better than the closing price in the 
subject security are guaranteed an execution unless there is a trading 
halt in the security. LOC orders limited at the closing price are not 
guaranteed an execution.
    Rule 123C \10\ requires that all MOC and LOC orders be entered by 
3:40 p.m. in any stock on any trading day, unless entered to offset a 
published imbalance, or on either side of the market if a regulatory 
halt is in effect at 3:40 p.m. or occurs after that time. Floor brokers 
representing MOC/LOC orders in any stock must communicate their 
irrevocable MOC/LOC interest to the specialist by 3:40 p.m. In 
addition, Rule 123C prohibits the cancellation of MOCs and LOCs after 
3:40 p.m., except in the case of legitimate error (e.g., side, size, 
symbol, price, or duplication of an order) or when a regulatory trading 
halt is in effect at or occurs after 3:40 p.m.
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    \10\ On May 19, 2004 the SEC approved amendments to Exchange 
Rule 123C subject to technology upgrades to the electronic entry 
systems for MOC and LOC orders. See Securities Exchange Act Release 
No. 49682 (May 11, 2004), 69 FR 28969 (May 19, 2004); SR-NYSE-2004-
09. The approval further provided the Exchange would notify the 
Commission and Exchange membership of the implementation of such 
electronic entry systems. Id. To date the technological upgrades 
required to implement the previously approved amendments to Exchange 
Rule 123C have not been completed. The Exchange intends to formally 
submit a revised proposal to the Commission in order to modify its 
closing procedures.

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[[Page 31176]]

    Between 3:40 and 3:50 p.m., MOC/LOC orders are irrevocable, except 
to correct a legitimate error or when a regulatory trading halt is in 
effect at or occurs after 3:40 p.m.
    In the case of a regulatory halt, MOC orders may be entered until 
3:50 p.m. or until the stock reopens, whichever occurs first, even if 
an imbalance publication occurred prior to the regulatory halt. 
Cancellation or reductions in size of MOC/LOC orders after 3:50 p.m. 
are not permitted for any reason, including in case of legitimate 
error.
Proposed Exchange System Dissemination of Order Imbalance Information
    The Exchange proposes to include Order Imbalance Information as 
supplemental information that may be disseminated by Exchange systems 
prior to opening and closing transactions pursuant to Exchange Rules 15 
and 123C respectively.
    The Exchange plans to distribute the Order Imbalance Information in 
real-time at specified intervals prior to the opening and closing 
transactions. The Order Imbalance Information disseminated by the 
Exchange will include the publication time, imbalance side, imbalance 
quantity, paired quantity and symbol for each security.
Order Imbalance Information Prior to the Opening Transaction
    The Order Imbalance Information disseminated prior to the opening 
transaction will include all interest eligible for execution in the 
opening transaction of the security in Exchange systems. The previous 
trading day's closing price on the NYSE in the security will serve as 
the reference price for the Order Imbalance Information disseminated 
prior to the opening transaction. The Order Imbalance Information 
disseminated prior to the opening transaction indicates to market 
participants the number of shares that would be required to equalize 
buy and sell interest (i.e. flat) at the reference.
    The Exchange plans to distribute the Order Imbalance Information at 
specified intervals prior to the opening. Order Imbalances disseminated 
prior to the opening will be disseminated as follows:
     Every five minutes between 8:30 a.m. Eastern Time (``ET'') 
and 9 a.m. ET.
     Every minute between 9 a.m. ET and 9:20 a.m. ET.
     Every 15 seconds between 9:20 a.m. ET and the opening (or 
9:35 a.m. ET if the opening is delayed).
Order Imbalance Information Prior to the Closing Transaction
    The Order Imbalance Information disseminated prior to the closing 
transaction will include all the same information used in Exchange Rule 
123C(5)(Publication of MOC Imbalances).\11\ Order Imbalance Information 
disseminated prior to the close will use the last sale in the security 
on the NYSE prior to dissemination of the Order Imbalance Information 
as its reference price to indicate the number of shares required to 
close ``flat.''
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    \11\ Exchange Rule 123C(5) provides in pertinent part: Imbalance 
publications will include MOC orders as well as marketable LOC 
orders. In that regard, LOC orders to buy at a price higher than the 
last sale price are to be included with the buy MOC orders; LOC 
orders to sell at a price lower than the last sale price are to be 
included with the sell MOC orders. LOC orders with a limit equal to 
the last sale price would not be included in the imbalance 
calculation. * * *
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    Similar to the dissemination of Order Imbalance Information prior 
to the open, Order Imbalance Information disseminated prior to the 
close will be distributed at specified intervals. Order Imbalances 
disseminated prior to the close will be disseminated as follows:
     Every fifteen seconds between 3:40 p.m. ET and 3:50 p.m. 
ET.
     Every five seconds between 3:50 p.m. ET and 4 p.m. ET.
    On any day that the scheduled close of trading on the NYSE is 
earlier than 4 p.m. ET, the dissemination of Order Imbalance 
Information prior to the closing transaction will commence 20 minutes 
before the scheduled closing time. Order Imbalance Information will be 
disseminated every fifteen seconds for approximately 10 minutes. 
Thereafter, the Order Imbalance Information will be disseminated every 
five seconds until the scheduled closing time.
    The data feed containing the Order Imbalance Information is in 
addition to the Publication of MOC Imbalances pursuant Exchange Rule 
123C(5) that is disseminated by the specialist in his or her assigned 
security at 3:40 p.m. and 3:50 p.m. The Order Imbalance Information 
will be published through OpenBook. The mandatory publications 
published by the specialist pursuant to NYSE Rule 123C will be included 
in both the Order Imbalance Information data feed and on the 
Consolidated Tape. Only mandatory indications published pursuant to 
123C control whether a party may enter offsetting interest.
Conclusion
    The Exchange believes that the amendments to NYSE Rules 15 and 123C 
effectively provide useful information to the marketplace especially in 
situations involving price changes based on order imbalances.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under section 6(b)(5) \12\ that an Exchange have rules that 
are designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest. This amendment to Exchange Rules 15 
and 123C supports the system of a free and open market and serves to 
protect investors and the public interest by providing market 
participants with supplemental market information prior to the 
execution of the opening and closing transactions on the NYSE.
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    \12\ 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 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 were neither solicited nor received.

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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest, the proposed rule change has become effective pursuant to 
section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) 
thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \15\ permits the Commission to

[[Page 31177]]

designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay set 
forth in Rule 19b-4(f)(6)(iii) under the Act, which would make the rule 
change operative upon filing.
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    \15\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to 
the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of the proposed 
rule change, at least five business days prior to the date of filing 
of the proposed rule change, or such shorter time as designated by 
the Commission. NYSE has satisfied the pre-filing notice 
requirement.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because such waiver would immediately allow the Exchange to disseminate 
this supplemental information prior to the execution of the opening and 
closing transactions on the NYSE. Accordingly, the Commission 
designates the proposal to be operative upon filing with the 
Commission.\16\
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    \16\ For purposes only of waiving the 30-day operative delay of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2008-41 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-2008-41. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the NYSE. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSE-2008-41 and should be 
submitted on or before June 20, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-12075 Filed 5-29-08; 8:45 am]

BILLING CODE 8010-01-P