Document ID: SEC-2012-1093-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2012-07-06T04:00Z

[Federal Register Volume 77, Number 130 (Friday, July 6, 2012)]
[Notices]
[Pages 40133-40136]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16521]

[[Page 40133]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67317; File No. SR-NYSE-2012-19]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Rule Change, as Modified by Amendment No. 1 
Thereto, (1) Amending Rule 13 To Establish New Order Types, (2) 
Amending Rule 115A To Delete Obsolete Text and To Clarify and Update 
the Description of The Allocation of Market and Limit Interest in 
Opening and Reopening Transactions, (3) Amending Rule 123C To Include 
Better-Priced G Orders in The Allocation of Orders in Closing 
Transactions, and (4) Making Other Technical and Conforming Changes

June 29, 2012.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on June 15, 2012, 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, II 
and III below, which Items have been prepared by the self-regulatory 
organization. On June 27, 2012, the Exchange filed Amendment No. 1 to 
the proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to (1) amend Rule 13 to establish new order 
types, (2) amend Rule 115A to delete obsolete text and to clarify and 
update the description of the allocation of market and limit interest 
in opening and reopening transactions, (3) amend Rule 123C to include 
better-priced G orders in the allocation of orders in closing 
transactions, and (4) make other technical and conforming changes. The 
text of the proposed rule change is available on the Exchange's Web 
site at www.nyse.com, at the principal office of the Exchange, 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 self-regulatory organization 
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 those 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 parts 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 proposes to (1) amend Rule 13 to establish new order 
types, (2) amend Rule 115A to delete obsolete text and to clarify and 
update the description of the allocation of market and limit interest 
in opening and reopening transactions, (3) amend Rule 123C to include 
better-priced G orders \4\ in the allocation of orders in closing 
transactions, and (4) make other technical and conforming changes.
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    \4\ A G order is a proprietary order represented pursuant to 
Section 11(a)(1)(G) of the Securities Exchange Act of 1934 (the 
``Act''). Section 11(a)(1) of the Act generally prohibits a member 
of a national securities exchange from effecting transactions on 
that exchange for its own account, the account of an associated 
person, or any account over which it or an associated person 
exercises discretion. See 15 U.S.C. 78k(a)(1). Subsection (G) of 
Section 11(a)(1) provides an exemption allowing an exchange member 
to have its own floor broker execute a proprietary transaction (``G 
order''). A g-Quote is an electronic method for Floor brokers to 
represent G orders. The Exchange proposes to amend Rule 13 to define 
a ``G order'' as the term is currently used in Rule 123C(7), and the 
Exchange proposes to add it to Rule 115A.
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Rule 13 Order Type Amendments
    The Exchange proposes to amend Rule 13 to delete the At the Opening 
and At the Opening Only order types \5\ and replace them with Market 
``On-the-Open'' (``MOO'') and Limit ``On-the-Open'' (``LOO'') order 
types, terminologies commonly used by other exchanges \6\ and 
variations of the Market ``At-The-Close'' (``MOC'') and Limit ``At-The-
Close'' (``LOC'') order types already offered by the Exchange.\7\ Under 
current Rule 13, At the Opening and At the Opening Only orders can 
execute after the security opens on a quote, which is why the current 
definition includes provisions relating to routing such interest to an 
away market. The Exchange wishes to preclude such interest from 
executing after opening on a quote, or routing to an away market, and 
as such, the new MOO and LOO order definitions would specifically 
provide that such order types automatically cancel if the security 
opens either on a quote or a trade.
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    \5\ Under current Rule 13, these orders are market or limited 
price orders that are to be executed on the opening trade of the 
stock on the Exchange or, if the Exchange opens the stock on a 
quote, the opening trade in the stock on another market center to 
which such order or part thereof has been routed in compliance with 
Regulation NMS; any such order or portion thereof not so executed is 
treated as cancelled. An At the Opening or At the Opening Only order 
that seeks the possibility of an NYSE-only opening execution must be 
marked as a Regulation NMS-compliant Immediate or Cancel (``IOC'') 
order. An order so marked, or part thereof, is immediately and 
automatically cancelled if it is not executed on the opening trade 
of the stock on the Exchange or compliance with Regulation NMS 
requires all or part of such order to be routed to another market 
center.
    \6\ See, e.g., NYSE Arca Equities Rule 7.31(t)(1) and (2); 
NASDAQ Rule 4752(a)(3) and (4); and BATS Exchange Rule 11.23(a)(14) 
and (16).
    \7\ See Rule 13.
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    A MOO would be defined as a market order in a security that is to 
be executed in its entirety on the opening or reopening trade of the 
security on the Exchange; it would be immediately and automatically 
cancelled if the security opened on a quote or if it were not executed 
due to tick restrictions. A LOO order would be defined as a limit order 
in a security that is to be executed on the opening or reopening trade 
of the security on the Exchange. A LOO order, or a part thereof, would 
immediately and automatically cancel if by its terms it were not 
marketable at the opening price, if it were not executed on the opening 
trade of the security on the Exchange, or if the security opened on a 
quote. Both MOO and LOO orders could be entered before the open to 
participate on the opening trade or during a trading halt or pause to 
participate on a reopening trade.
    The Exchange also proposes to add a new paragraph (c) in the 
definition of IOC orders to provide for a new order type, an IOC-
Minimum Trade Size (``MTS'') order (``IOC-MTS order''), which would be 
defined as any IOC order, including an intermarket sweep order, that 
includes an MTS instruction.\8\ For each incoming IOC-MTS order, 
Exchange systems would evaluate whether contra-side displayable and 
non-displayable interest on Exchange systems could meet the MTS and 
reject such incoming IOC-MTS order if Exchange contra-side volume could 
not do so. An NYSE IOC order with an MTS could result in an execution 
in an away market. For example, assume that the Exchange best bid or 
offer is $10.05-$10.07 with 500 shares offered. A buy NYSE IOC-MTS 
market order for 500 shares arrives, and

[[Page 40134]]

because NYSE can fill it, the incoming NYSE IOC-MTS order would be 
accepted. However, if the current best protected offer is $10.06 on 
another market for 200 shares, NYSE would route 200 shares of the 
incoming NYSE IOC-MTS to Nasdaq and execute the balance of 300 shares 
at $10.07. The Exchange would reject any IOC-MTS orders if the security 
were not open for trading, if it were halted or paused, or if auto-
execution were suspended.
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    \8\ A minimum trade size instruction is currently available to 
Floor brokers for d-quotes under NYSE Rule 70.25(d). Nasdaq also 
offers a Minimum Quantity Order, which is a non-displayed order that 
will not execute unless a specified minimum quantity of shares can 
be obtained.
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    The Exchange proposes non-substantive amendments to its Immediate 
or Cancel definition as well, including adding the short-form term 
``IOC'' to the rule, redesignating existing paragraphs (c) and (d) as 
(d) and (e) respectively, and conforming existing rule text to provide 
that only an IOC order without an MTS could be entered before the 
Exchange opening for participation in the opening trade or when auto 
execution is suspended, which includes during a trading pause or halt. 
Existing paragraph (e) would be deleted because it contains obsolete 
text.\9\
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    \9\ Paragraph (e) references commitments to trade received on 
the Floor through the Intermarket Trading System (``ITS''). ITS was 
decommissioned in connection with the implementation of Regulation 
NMS on July 9, 2007.
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    The Exchange proposes additional technical and conforming 
amendments to Rule 13. The Exchange proposes to delete the definition 
of Auction Market Order \10\ because this order type was never 
implemented. The Exchange also proposes to delete the definition of 
Time Order because this relates to a Floor broker order that 
historically would have been held by the specialist on behalf of the 
Floor broker and converted to a market or limit order at a specified 
time. In connection with both the Hybrid Market initiative and the 
Exchange's New Market Model, this order type is now obsolete and can no 
longer be used by Floor brokers. In addition, the Exchange proposes to 
amend the definition of Auto Ex Order to remove a reference to the 
Automated Bond System, which is no longer operational.
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    \10\ See Securities Exchange Act Release No. 53539 (March 22, 
2006), 71 FR 16353 (March 31, 2006) (SR-NYSE-2004-05).
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Rule 115A Opening Allocation
    The Exchange proposes to amend Rule 115A, which addresses orders at 
the opening or in unusual situations. Currently, the Rule contains no 
text but has Supplementary Material .10, which addresses queries to the 
Display Book before an opening; Supplementary Material .20, which 
addresses the arranging of an opening or price by a Designated Market 
Maker (``DMM''); and Supplementary Material .30, which addresses 
certain functions of Exchange systems with respect to orders at the 
opening.
    The Exchange proposes to redesignate Supplementary Material .10 as 
Rule 115A(a) but does not propose any change to the text of this 
provision.
    The Exchange proposes to add new Rule 115A(b), which would address 
the allocation of orders on opening and reopening trades and delete in 
its entirety the text of Supplementary Material .20 and .30. Most of 
the current text of Supplementary Material .20 and .30 is obsolete in 
that it describes DMM functions that have not been performed since the 
second phase of the New Market Model was launched in 2008.\11\ DMMs no 
longer hold orders. As such, the Exchange proposes to delete all of the 
text relating to those functions. Supplementary Material .30 also 
contains text describing Exchange systems that is either outdated or 
covered by Rule 15, and as such, also would be deleted.
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    \11\ See Securities Exchange Act Release No. 58845 (Oct. 24, 
2008), 73 FR 64379 (Oct. 29, 2008) (SR-NYSE-2008-46).
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    A few of the current provisions of Supplementary Material .20 
continue to be applicable following adoption of the New Market Model. 
Current paragraphs 2(a), (b), and (c) of Supplementary Material .20 
address the allocation and precedence of certain orders in openings and 
reopenings. Paragraph 2(a) provides that a limited price order to buy 
(sell) that is at a higher (lower) price than the security is to be 
opened or reopened is treated as a market order, and market orders have 
precedence over limited orders. Paragraph 2(b) provides that when the 
price on a limited price order is the same as the price at which the 
stock is to be opened or reopened, it may not be possible to execute a 
limited price order at such price. Paragraph 2(c) requires a DMM to see 
that each market order the DMM holds participates in the opening 
transaction, and if the order is for an amount larger than one round 
lot, the size of the bid that is accepted or the offer that is taken 
establishing the opening or reopening price is the amount that a market 
order is entitled to participate in at the opening or reopening.
    The Exchange proposes to move these concepts concerning the 
allocation and precedence of orders in openings and reopenings to 
proposed Rule 115A(b); further clarify and update the text to better 
reflect the Exchange's current practices; and expressly address the 
treatment of MOOs, LOOs, tick-sensitive market orders, Floor broker 
interest manually entered by DMMs, and G orders. Proposed Rule 115A(b) 
would provide that when arranging an opening or reopening price, except 
as provided for in proposed Rule 115A(b)(2), which is described below, 
market interest would be guaranteed to participate in the opening or 
reopening transaction and have precedence over (i) limit interest that 
is priced equal to the opening or reopening price of a security and 
(ii) DMM interest. For purposes of the opening or reopening 
transaction, market interest would include (i) market and MOO orders, 
(ii) tick-sensitive market and MOO orders to buy (sell) that are priced 
higher (lower) than the opening or reopening price, (iii) limit 
interest to buy (sell) that is priced higher (lower) than the opening 
or reopening price, and (iv) Floor broker interest entered manually by 
the DMM.
    For purposes of the opening or reopening transaction, limit 
interest would include (i) limited-priced interest, including e-Quotes, 
LOO orders, and G orders; and (ii) tick-sensitive market and MOO orders 
that are priced equal to the opening or reopening price of a security. 
Limit interest that is priced equal to the opening or reopening price 
of a security and DMM interest would not be guaranteed to participate 
in the opening or reopening transaction. In addition, G orders that are 
priced equal to the opening or reopening price of a security would 
yield to all other limit interest priced equal to the opening or 
reopening price of a security except DMM interest.
    The Exchange also proposes to include in the rule more specificity 
of the circumstances of when a security may open on a quote, and what 
would happen to odd-lot sized orders in such scenario. Proposed Rule 
115A(b)(2) would provide that if the aggregate quantity of MOO and 
market orders on at least one side of the market equals one round lot 
or more, the security must open on a trade. If the aggregate quantity 
of MOO and market orders on each side of the market equals less than 
one round lot or is zero, the security could open on a quote. If a 
security opens on a quote, odd-lot market orders would automatically 
execute in a trade immediately following the open on a quote and odd-
lot MOOs would immediately and automatically cancel. MOO and market 
orders subject to tick restrictions that either cannot participate at 
an opening or reopening price or are priced equal to the opening or 
reopening price would not be included in the aggregate quantity of MOO 
and market orders.

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Rule 123C Closing Allocation
    The Exchange proposes to amend Rule 123C to include better-priced G 
orders in the list of orders that must be allocated in whole or part in 
closing transactions. G orders on NYSE yield priority and parity to 
other non-G orders, other than CO Orders.\12\ However, Section 
11(a)(1)(G) of the Act does not require better-priced G orders to 
yield.
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    \12\ See supra note 4.
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    Currently, Rule 123C(7)(a) sets forth six order types that must be 
included in the closing transaction in the following order: (1) MOC 
orders that do not have tick restrictions, (2) MOC orders that have 
tick restrictions that limit the execution of the MOC to a price better 
than the price of the closing transaction, (3) Floor broker interest 
entered manually by the DMM, (4) limit orders better priced than the 
closing price, (5) LOC orders that do not have tick restrictions better 
priced than the closing transaction, and (6) LOC orders better priced 
than the closing transaction that have tick restrictions that are 
capable of being executed based on the closing price. Rule 123C(7)(b) 
provides that the following interest may be used to offset a closing 
imbalance in the following order: (1) Limit orders represented in the 
Display Book with a price equal to the closing price, (2) LOC orders 
with a price equal to the closing price, (3) MOC orders that have tick 
restrictions that limit the execution of the MOC to the price of the 
closing transaction, (4) LOC orders that have tick restrictions that 
are capable of being executed based on the closing price and the price 
of such limit order is equal to the price of the closing transaction, 
(5) G orders, and (6) Closing Only orders.
    The Exchange proposes to amend Rule 123C(7)(a) to add G orders that 
are better priced than the closing price as the last type of order that 
must be included in the closing transaction and to make a conforming 
change to Rule 123C(7)(b) to reference G orders priced equal to the 
closing price as being eligible to be used to offset a closing 
imbalance with the same priority as the current Rule reflects. Rule 
123C(7)(b)(i) also would be clarified by adding that DMM interest, as 
well as limit orders represented in the Display Book with a price equal 
to the closing price, are the first types of interest that may be used 
to offset a closing imbalance.\13\
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    \13\ The Exchange has noted in prior rule filings that DMM 
interest would be treated in such a manner. See, e.g., Securities 
Exchange Act Release No. 60974 (Nov. 9, 2009) 74 FR 59299 (Nov. 17, 
2009) (SR-NYSE-2009-111) (``After the `must execute interest' is 
satisfied, then any limit orders represented in Display Book at the 
closing price may be used to offset the remaining imbalance. It 
should be noted that DMM interest, including better-priced DMM 
interest entered into the Display Book prior to the closing 
transaction, eligible to participate in the closing transaction is 
always included in the hierarchy of execution as if it were interest 
equal to the price of the closing transaction.'').
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    The Exchange notes that in amending Rules 115A and 123C to include 
better-priced G orders in the allocation of orders in opening, 
reopening, and closing transactions, G orders priced at the opening, 
reopening, or closing price will still yield priority and parity to 
other non-G orders, other than CO Orders at the close, as required by 
Section 11(a) of the Act. The Exchange further notes that there is no 
requirement under the Act that better-priced G orders yield. The 
Exchange believes that including better-priced G orders in the required 
allocation for opening, reopening, and closing transactions will 
encourage member organizations to provide price improvement and 
liquidity on the Exchange. Moreover, for opening and reopening 
transactions, if better-priced G orders are not included in the ``has 
to go'' interest, immediately following the opening, such better-priced 
G orders will automatically be quoted, which, assuming it is sell G 
order interest, could result in an opening transaction, and then a sell 
quote that is below the opening price.
    Because these are technology-based changes, the Exchange will 
announce the implementation schedule via Trader Update.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\14\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\15\ 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 mechanism of a free and open market and a national market system. 
The Exchange believes that deleting the At the Opening and At the 
Opening Only order types and creating new MOO and LOO order types 
provide more clarity about how opening orders are processed, and in 
particular that automatically canceling such orders when the Exchange 
opens on quote will create efficiencies and also remove impediments to 
a free and open market. The Exchange further believes that offering a 
new order type, an IOC-MTS, will offer investors new trading 
opportunities on the Exchange. The LOO, MOO, and IOC-MTS orders are 
similar to orders that have already been approved by the 
Commission.\16\
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ See supra notes 6 and 8.
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    The Exchange believes that amending Rule 115A to delete obsolete 
text and to clarify and update the description of the allocation of 
market and limit interest in openings and reopenings and address the 
treatment of additional order types will add transparency and clarity 
to the Exchange's rules, thereby promoting just and equitable 
principles of trade and removing impediments to and perfecting the 
mechanism of a free and open market and a national market system.
    The Exchange believes that the proposed changes to Rule 123C and 
related proposed change concerning the treatment of better-priced G 
orders in Rule 115A will promote just and equitable principles of trade 
and remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and that the proposed changes also 
are consistent with Section 11(a)(1)(G) of the Act. As discussed above, 
G Orders priced at the opening, reopening, or closing price will 
continue to yield, as required by Section 11(a). Moreover, the Exchange 
believes that for the opening and reopening transactions, including 
better-priced G interest as ``has-to-go'' interest will encourage 
member organizations to provide price improvement and liquidity at the 
Exchange. The Exchange further believes that amending Rule 
123C(7)(b)(i) to expressly provide for the treatment of DMM interest in 
offsetting a closing imbalance will add transparency and clarity to the 
Exchange's rules, thereby promoting just and equitable principles of 
trade and removing impediments to and perfecting the mechanism of a 
free and open market and a national market system.
    Finally, the technical changes to remove obsolete references in 
Rule 13 also will add transparency and clarity to the Exchange's rules, 
thereby promoting just and equitable principles of trade and removing 
impediments to and perfecting the mechanism of a free and open market 
and a national market system.

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

[[Page 40136]]

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Within 45 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 (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the 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 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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2012-19 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR- NYSE-2012-19. This file 
number should be included on the subject line if email 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing will also be available 
for inspection and copying at the principal office of the Exchange. 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 publicly available. All 
submissions should refer to File Number SR-NYSE-2012-19 and should be 
submitted on or before July 27, 2012.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16521 Filed 7-5-12; 8:45 am]
BILLING CODE 8011-01-P