Document ID: SEC-2009-0414-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2009-03-26T04:00Z

[Federal Register: March 26, 2009 (Volume 74, Number 57)]
[Notices]               
[Page 13279-13281]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26mr09-121]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59603; File No. SR-NYSEArca-2009-21]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NYSE Arca, Inc. Amending Rule 
6.62 To Provide Additional Order Types

March 19, 2009.
    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 March 10, 2009, NYSE Arca, Inc. (``NYSE Arca'' or the ``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 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.
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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 Rule 6.62 to provide additional 
order types which will give investors greater control over the 
circumstances in which their orders are executed. Changes to the rule 
text are shown in the attached Exhibit 5. A copy of this filing is 
available on the Exchange's Web site at http://www.nyse.com, at the 
Exchange's principal office 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 purpose of this proposed rule change is to provide additional 
order types which will give market participants greater control over 
the circumstances in which their orders are executed.
    NYSE Arca's options market has a price-time priority market 
structure, with automated routing if an incoming order is marketable 
against the National Best Bid/Offer (``NBBO''), but not immediately 
marketable on the Exchange. While the Exchange considers this to be a 
highly desirable market structure, some investors and market 
participants wish to provide

[[Page 13280]]

liquidity in some but not all circumstances; others wish to not have 
orders routed but still be available for execution on NYSE Arca. To 
help meet these desires, the Exchange proposes the following order 
types:
Tracking Order
    A Tracking Order is an undisplayed limit order that is eligible for 
execution in the Working Order Process against orders equal to or less 
than the size of the Tracking Order. While Tracking Orders are ranked 
at their limit price, they are only eligible for execution at a price 
that matches the NBBO. A Tracking Order is intended only to provide 
liquidity in the event a marketable order would otherwise route to 
another exchange.
    Tracking Orders have no standing with regard to open outcry 
trading, as they are not displayed, nor (unlike a Price Improving Order 
or Quote) are they represented in the disseminated bid or offer at an 
indicative price. Tracking Orders only have standing if contra interest 
in the NYSE Arca System would otherwise be routed to another market 
center at the NBBO. If a Floor Broker needs to enter an order into the 
System in order to clear the NBBO prior to executing at a worse price 
on the Floor, that order will trade with any eligible Tracking Orders.
    For instance, the NBBO market in a series is 2.05-2.15, with a 2.10 
Tracking Order to buy 10 contracts, but the NYSE Arca displayed bid is 
2.00. An order is received to sell 6 contracts at 2.05; this order will 
be matched against the 2.10 buy Tracking Order at a price of 2.05, 
matching the NBBO.
    Similarly, with the same initial scenario, a second Tracking Order 
to buy 20 contracts paying 2.05 is placed in the Consolidated Book. An 
order is received to sell 15 contracts at 2.05. This order is matched 
against the second Tracking Order, rather than the first Tracking 
Order, because it is greater in size than the first Tracking Order, but 
not greater in size than the second Tracking Order. It will be executed 
at 2.05, the NBBO price.
    If a Tracking Order is executed but not exhausted, the remaining 
portion of the order shall be cancelled, without routing the order to 
another market center or market participant. A Tracking Order shall not 
trade-through the NBBO.
    Attempts to use a Tracking Order to execute a cross transaction 
would be considered a violation of NYSE Arca Rule 6.47A, as that rule 
requires an order to be exposed (displayed) if it is part of a cross 
transaction.
Liquidity Adding Order
    A Liquidity Adding Order is a limit order that will only be 
accepted if it is not marketable at the time of receipt. It is intended 
to provide liquidity and also will receive a liquidity adding credit if 
entered into an issue that credits a Post Liquidity Fee. Liquidity 
Adding Orders are not eligible for routing, but will be rejected if 
marketable against the NBBO. If a Liquidity Adding Order will lock or 
cross the market at the time of entry it will be rejected. Liquidity 
Adding Orders that, at the time of entry, would otherwise interact with 
undisplayed orders will be rejected. Liquidity Adding Orders may have a 
time-in-force of Day or GTC, but not IOC.
PNP-Blind Order
    NYSE Arca has an existing order type known as PNP (Post No 
Preference) \3\ which is a limit order that is only to be executed on 
the Exchange, and may be ranked in the Consolidated Book if not 
marketable, but is never to be routed. A PNP order that is marketable 
against the NBBO when entered is cancelled back to the entering OTP 
Holder.
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    \3\ See NYSE Arca Rule 6.62(p).
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    Certain OTP Holders have asked for a similar order type that will 
also not route if marketable against the NBBO, but, unlike a PNP order, 
will not be cancelled if similarly marketable.
    A PNP Blind order is a limit order that is to be executed on the 
Exchange, but never routed to another market. The unexecuted portion of 
a PNP Blind order is to be ranked in the Consolidated Book. Unlike a 
conventional PNP order, a PNP Blind Order that is marketable against 
the NBBO will not be cancelled; however, the price and size will not be 
disseminated to OPRA. If the NBBO moves so that the PNP Blind Order no 
longer locks or crosses the NBBO, the order's price and size will be 
disseminated. When a PNP Blind order is not displayed, it provides 
price improvement to any incoming contra-side order. A PNP Blind order 
will be executed at its limit price, if displayed, or at a price that 
matches the contra side of the NBBO, if undisplayed.
PNP Light Order
    A conventional PNP Order is a Limit Order that is to be executed in 
whole or in part on the Exchange, and the portion that is not so 
executed is to be ranked in the Consolidated Book, without routing any 
portion of the order to another market center; provided, however, the 
Exchange shall cancel a PNP Order that would lock or cross the NBBO. A 
PNP Order is eligible for execution against any displayed and 
undisplayed trading interest in the Consolidated Book, such as a PNP 
Blind Order, or the undisplayed portion of a Reserve Order.\4\
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    \4\ See NYSE Arca Rule 6.62(d)(3).
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    A PNP Light Order is a PNP order that carries the added instruction 
to cancel the order if it is marketable against interest that is not 
displayed in the Consolidated Book. This provides OTP Holders greater 
ability to control the circumstances in which their orders are 
executed.
    As with a conventional PNP order, a PNP Light order is to be 
executed in whole or in part on the Exchange, and the portion not so 
executed is to be ranked in the Consolidated Book, without routing any 
portion of the order to another market center; provided, however, the 
Exchange shall cancel a PNP-Light Order that would (i) lock or cross 
the NBBO, or (ii) be marketable against undisplayed interest in the 
Consolidated Book. For example, if there is a resting PNP Blind order 
in the Consolidated Book that is not displayed, a contra sided PNP 
Light order will be cancelled.
    A PNP Light order will execute against a Price Improving Order or 
Quote,\5\ or against the displayed portion of a Reserve Order, since 
such orders are represented and displayed in the Consolidated Book.
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    \5\ See NYSE Arca Rule 6.62(s).
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    A PNP Light order will be executed at the NBBO if executed upon 
receipt, or else at its limit price (unless price-improved by a Price 
Improving Order or Quote).
    PNP, PNP Blind, and PNP Light orders will never execute against 
Tracking Orders.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
and furthers the objectives of Section 6(b)(5) of the Act,\6\ in that 
it is designed to promote just and equitable principles of trade, 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest, by providing investors with 
additional order types that allow greater flexibility in managing the 
circumstances in which their orders are executed.
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    \6\ 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

[[Page 13281]]

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \7\ and Rule 19b-4(f)(6) thereunder.\8\ 
Because the 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 prior to 
30 days from the date on which it was filed, 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 \9\ and Rule 19b-
4(f)(6)(iii) thereunder.\10\
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    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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. The 
Exchange has satisfied the pre-filing requirement.
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    At any time within 60 days of the filing of such 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-NYSEArca-2009-21 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-NYSEArca-2009-21. 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 the filing also will be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-2009-21 and should be submitted on or before April 16, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Florence E. Harmon,
Deputy Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E9-6702 Filed 3-25-09; 8:45 am]