Document ID: SEC-2006-0220-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange, Inc.
Posted Date: 2006-02-17T05:00Z

[Federal Register: February 17, 2006 (Volume 71, Number 33)]
[Notices]               
[Page 8626-8628]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17fe06-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53275; File No. SR-NYSE-2006-02]

 
Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Extension of Two Crossing Sessions in the Exchange's Off-
Hours Trading Facility

February 13, 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 January 25, 2006, the New York Stock Exchange, Inc. (``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. The Exchange 
filed the proposed rule change pursuant to Section 19(b)(3)(A) of the 
Act \3\ and Rule 19b-4(f)(6) thereunder, which renders it effective 
upon filing with the Commission.\4\ 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 NYSE proposes to extend until February 1, 2007 the following 
pilot programs (``Pilots''): Crossing Session III, for the execution of 
guaranteed price coupled orders by member organizations to fill the 
balance of customer orders at a price that was guaranteed to a customer 
prior to the close of the Exchange's 9:30 a.m. to 4 p.m. trading 
session (``Crossing Session III''); and Crossing Session IV, whereby an 
unfilled balance of an order may be filled at a price such that the 
entire order is filled at no worse price than the Volume Weighted 
Average Price (``VWAP'') for the subject security (``Crossing Session 
IV''). The text of the proposed rule change is available on the NYSE's 
Web site (http://www.nyse.com), at the NYSE's Office of Secretary, 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 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 
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
    In SR-NYSE-2002-40,\5\ the Commission approved an order 
establishing two new crossing sessions (Crossing Sessions III and IV) 
in the Exchange's Off-Hours Trading Facility (``OHTF'') as pilot 
programs that expired on December 1, 2004. Subsequently, the Commission 
published a notice of filing and immediate effectiveness of a proposed 
rule change extending the Pilots until February 1, 2006.\6\ This 
proposal extends the Pilots until February 1, 2007.\7\ Crossing 
Sessions III and IV are described below.
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    \5\ See Securities Exchange Act Release No. 48857 (December 1, 
2003), 68 FR 68440 (December 8, 2003).
    \6\ See Securities Exchange Act Release No. 51091 (January 28, 
2005), 70 FR 6484 (February 7, 2005) (SR-NYSE-2005-01).
    \7\ The NYSE confirmed that the Pilots will continue to function 
in the same manner that they operated prior to the one-year 
extension. Telephone conversation between Donald Siemer, Director, 
Market Surveillance, NYSE, Joseph P. Morra, Special Counsel, 
Division of Market Regulation (``Division''), Commission and Johnna 
B. Dumler, Attorney, Division, Commission on February 10, 2006.
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Background
    The purpose of SR-NYSE-2002-40 was to add two additional ``Crossing 
Sessions'' (Crossing Sessions III and IV) to the Exchange's OHTF. 
Before SR-NYSE-2002-40, the OHTF consisted of Crossing Sessions I and 
II. Crossing Session I permits the execution, at the Exchange's closing 
price, of single-stock, single-sided closing price orders and crosses 
of single-stock, closing price buy and sell orders. Crossing Session II 
permits the execution of crosses of multiple-stock (``basket'') 
aggregate priced buy and sell orders. For Crossing Session II, trade 
reporting is accomplished by reporting to the Consolidated Tape the 
total number of shares and the total market value of the aggregate-
price trades. There is no indication of the individual component stocks 
involved in the aggregate-price transactions.
Crossing Session III
    In the instant proposed rule change, the Exchange is proposing to 
extend until February 1, 2007, the Pilot in Crossing Session III. 
Crossing Session III is described in NYSE Rule 907. This Pilot would 
continue to allow for the execution on the NYSE of ``guaranteed price 
coupled orders'' whereby member organizations could fill the unfilled 
balance of a customer order at a price which was guaranteed to the 
customer prior to the close of the Exchange's 9:30 a.m. to 4 p.m. 
trading session.
The Granting of ``Upstairs Stops''
    In serving their institutional customers, member firms may offer 
them a guarantee that a large size order will receive no worse than a 
particular price. Such a practice is usually referred to as an 
``upstairs stop,'' meaning that

[[Page 8627]]

the firm guarantees that its customer's order will be executed at no 
worse price than the agreed-upon, guaranteed price, with the member 
firm trading for its own account, if necessary, to effectuate the 
guarantee.
    Typically, a member firm will seek to execute as much of the order 
as possible during the trading day at or below the ``stop'' price (in 
the case of a buy order) or at or above the ``stop'' price (in the case 
of a sell order). Any portion of the order not filled during the 
trading day will be completed after hours, with the firm either buying 
from, or selling to, its customer at a price which ensures that the 
entire order is executed at a price which is no worse than the ``stop'' 
price.
    Member firms typically execute the unfilled balance of the order, 
after the U.S. Consolidated Tape is closed, in the London over-the-
counter market, where trades are not reported in real time. The purpose 
of this is simply to minimize the possibility that other market 
participants may ascertain the firm's, or the customer's inventory 
position, and possibly trade in the subject security to the detriment 
of the firm that granted the ``upstairs stop.'' According to the 
Exchange, it is more transparent to print the trade in the NYSE primary 
market during U.S. Consolidated Tape hours.

Crossing Session IV

    The Exchange is also proposing to extend the Pilot in Crossing 
Session IV (which is also described in NYSE Rule 907), until February 
1, 2007. Crossing Session IV is a facility whereby member organizations 
may fill the unfilled balance of a customer's order at a price such 
that the overall order is filled at a price that is no worse than the 
VWAP for the subject security on that trading day. The member 
organization would be required to document its VWAP agreement with the 
customer and the basis upon which the VWAP price would be determined.
Operation of Crossing Sessions
    As described in NYSE Information-Memos 04-30 and 05-57 and NYSE 
Rule 907, Crossing Session III and Crossing Session IV would continue 
to operate as follows:
    (i) The original order as to which an ``upstairs stop'' or ``VWAP'' 
has been granted may be of any size;
    (ii) The customer must have received a ``stop'' (guaranteed price) 
or VWAP for the entire order;
    (iii) The member firm must record all details of the order, 
including the price it has guaranteed its customer or that the entire 
order will be filled at no worse than the VWAP;
    (iv) An order or the unfilled balance of an order that would be 
executed in Crossing Session III or Crossing Session IV may be of any 
size;
    (v) The customer's order must be executed in Crossing Session III 
or Crossing Session IV at a price that ensures that the entire order is 
executed at a price that is no worse than the guaranteed price or the 
VWAP;
    (vi) Orders may be entered in Crossing Session III or Crossing 
Session IV between 4 p.m. and 6:30 p.m., and must be identified as 
either a Crossing Session III or Crossing Session IV order;
    (vii) Member firms will receive an immediate report of execution 
upon entering an order into Crossing Session III or Crossing Session 
IV;
    (viii) Orders may be entered into Crossing Session III for 
execution at prices outside the trading range in the subject security 
during the 9:30 a.m. to 4 p.m. trading session;
    (ix) Orders may not be entered into Crossing Session III or 
Crossing Session IV in a security that is subject to a trading halt at 
the close of the regular 9:30 a.m. to 4 p.m. trading session; and
    (x) At 6:30 p.m., the Exchange will print trades reported through 
Crossing Session III as guaranteed price coupled orders or in Crossing 
Session IV as VWAP executions.
2. Statutory Basis
    NYSE believes that the proposed rule change is consistent with 
Section 6 of the Act \8\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \9\ 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)\10\ and Rule 19b-4(f)(6) 
thereunder.\11\ 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    NYSE has asked the Commission to waive the five-day pre-filing 
notice requirement and the 30-day operative delay. The Commission 
believes such waiver is consistent with the protection of investors and 
the public interest because it would allow the Pilots to operate 
without interruption.\12\ For this reason, the Commission designates 
the proposal to be operative upon filing with the Commission.
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    \12\ For purposes only of waiving the 30-day pre-operative 
period, 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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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 e-mail to rule-comments@sec.gov. Please include File 

Number SR-NYSE-2006-02 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-2006-02. This file 
number should be included on the subject line if e-mail is used. To 
help the

[[Page 8628]]

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-2006-02 and should be submitted by March 10, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
Nancy M. Morris,
Secretary.
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    \13\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E6-2299 Filed 2-16-06; 8:45 am]

BILLING CODE 8010-01-P