Document ID: SEC-2007-0934-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NYSE Arca, Inc.
Posted Date: 2007-07-10T04:00Z

[Federal Register: July 10, 2007 (Volume 72, Number 131)]
[Notices]               
[Page 37557-37558]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10jy07-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56001; File No. SR-NYSEArca-2007-34]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving 
Proposed Rule Change and Amendment No. 1 Thereto Relating to Trading a 
Class of Options Without Designating a Lead Market Maker

July 2, 2007.
    On April 3, 2007, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ the proposed rule change to 
allow an options issue to trade without designating a Lead Market Maker 
(``LMM''). On May 2, 2007, NYSE Arca filed Amendment No. 1 to the 
proposed rule change. The proposed rule change, as amended, was 
published for comment in the Federal Register on May 29, 2007.\3\ The 
Commission received no comments regarding the proposal. This order 
approves the proposed rule change as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 55789 (May 21, 
2007), 72 FR 29568.
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    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\4\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\5\ which requires that the 
rules of the an exchange be 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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    \4\ 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).
    \5\ 15 U.S.C. 78f(b)(5).
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    The Exchange proposes to trade options classes without designating 
an LMM, yet still meet the requirements of the Plan for the Purpose of 
Creating and Operating an Intermarket Option Linkage (``Linkage 
Plan'').\6\ Because the Exchange believes that certain highly liquid, 
highly active options classes have sufficient participation by OTP 
Holders \7\ and do not need an LMM to foster liquidity, the Exchange 
proposes to remove from NYSE Arca Rule 6.35 the requirement that an LMM 
be assigned to every option class.\8\
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    \6\ On July 28, 2000, the Commission approved the Options 
Intermarket Linkage (``Linkage'') proposed by American Stock 
Exchange LLC, Chicago Board Options Exchange, Incorporated, and 
International Securities Exchange, LLC. See Securities Exchange Act 
Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000). 
Subsequently, Philadelphia Stock Exchange, Inc., Pacific Exchange, 
Inc. (n/k/a NYSE Arca), and Boston Stock Exchange, Inc. joined the 
Linkage Plan. See Securities Exchange Act Release Nos. 43573 
(November 16, 2000), 65 FR 70851 (November 28, 2000); 43574 
(November 16, 2000), 65 FR 70850 (November 28, 2000); and 49198 
(February 5, 2004), 69 FR 7029 (February 12, 2004).
    \7\ See NYSE Arca Rule 1.1(q) for the definition of ``OTP 
Holder.''
    \8\ In not designating an LMM in certain option issues, orders 
would be processed in price/time priority, meaning any market 
participant, regardless of status, may gain priority by improving 
the market.
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    The Exchange also proposes other rule changes to accommodate the 
requirements of the Linkage Plan. Pursuant to the Linkage Plan, a 
Principal Acting as Agent (``P/A'') Order may be routed to another 
exchange only through the principal account of a market maker that is 
authorized to represent customer orders, ``reflecting the terms of a 
related unexecuted Customer order for which the Market Maker is acting 
as agent.'' \9\ On NYSE Arca, the LMM currently is the responsible 
Market Maker for outbound P/A Orders sent through the Intermarket 
Options Linkage (``Linkage''). The Exchange now proposes to allow for 
the designation of a Market Maker, assigned on a rotating basis, as the 
responsible Intermarket Linkage Market Maker (``IMM'') \10\ for 
outbound P/A Orders.
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    \9\ See Section 2(16)(a) of the Linkage Plan.
    \10\ The IMM would be selected from the pool of all Market 
Makers who have been appointed in the particular class. Market 
Makers requesting appointment to an options class would need to 
agree to participate in the rotation of IMM assignment.
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    Currently, Market Makers on the Exchange other than LMMs are not 
permitted under the Exchange's current rules to act as an agent on 
behalf of an order submitted to the Exchange.\11\ Therefore, the 
Exchange proposes to amend NYSE Arca Rule 6.38(a) to provide an 
exception for a Market Maker acting as an IMM for the purpose of 
settling P/A Orders sent to another exchange pursuant to NYSE Arca 
Rules 6.92 and 6.93. To enable the IMM to carry out its agency 
responsibilities with regard to P/A Orders submitted through the 
Linkage, the IMM would be required to submit prior written instructions 
to the Exchange for the routing of any P/A Orders through the Linkage. 
Although the Exchange intends to rely solely on the use of its outbound 
routing broker to access the quotes of other exchanges when the 
Exchange is not disseminating the national best bid or offer, there may 
be instances when the Exchange's routing broker is not available 
because of system malfunctions. Therefore, the Exchange proposes that 
designated IMMs be responsible for outbound P/A Orders sent through the 
Linkage.
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    \11\ See NYSE Arca Rule 6.38(b)(1), which provides that Market 
Makers other than LMMs are restricted from acting as a principal and 
an agent in the same issue on the same business day. See also NYSE 
Arca Rule 6.38(b)(5), which provides Market Makers are restricted 
from acting as a floor broker in options covering the same 
underlying security to which its primary appointment extends.
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    The Exchange also proposes to amend NYSE Arca Rule 6.93 to clarify 
that the Exchange will be responsible for the receipt, processing, and 
execution of inbound Linkage orders received from other exchanges. 
Linkage orders sent to NYSE Arca are routed directly to the trading 
system for immediate automatic execution. Any remaining unexecuted 
order or portion of an order would be immediately returned by the 
Exchange to the originating away market.
    The Commission believes that the proposed rule change is reasonably 
designed in that it permits the Exchange to not utilize an LMM in 
option classes where the Exchange does not believe an LMM is required 
and promotes the

[[Page 37558]]

principle of price/time priority on the Exchange. Further, the 
Commission believes that designating IMMs for the purpose of sending P/
A Orders to away markets is not inconsistent with the Linkage Plan, 
because, among other things, the proposal will facilitate the sending 
of P/A Orders to other exchanges through Linkage in accordance with the 
requirements of the Linkage Plan's definition of P/A Orders. In 
addition, the Commission also believes the proposal clarifies the 
Exchange's role in the processing of orders it receives through 
Linkage.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NYSEArca-2007-34), as 
modified by Amendment No. 1, be, and it hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-13311 Filed 7-9-07; 8:45 am]

BILLING CODE 8010-01-P