Document ID: SEC-2008-0246-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2008-02-14T05:00Z

[Federal Register: February 14, 2008 (Volume 73, Number 31)]
[Notices]               
[Page 8731-8733]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14fe08-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57295; File No. SR-NYSE-2008-11]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rules 13 and 124 To Remove Certain Manual Order Types

February 8, 2008.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 31, 2007, 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 prepared substantially by NYSE. NYSE 
filed the proposed rule change as a ``non-controversial'' proposed rule 
change pursuant to section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders it 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\ 5 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

    NYSE proposes to amend to amend Rules 13 and 124 to remove certain 
manual order types. The text of the proposed rule change is available 
at NYSE, the Commission's Public Reference Room, and http://
www.nyse.com.

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. 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
    NYSE seeks to amend Rules 13 and 124 to remove certain manual order 
types that are no longer compatible in today's electronic market. These 
order types are defined in Rule 13 (i.e., the ``Alternative Order--
Either/Or Order'', ``Orders Good Until a Specified Time'', ``Scale 
Order'' and ``Switch Order--Contingent Order'') and Rule 124 (i.e., the 
``Limited Order, With or Without Sale'' and ``Basis Price Order''). The 
Exchange also seeks to make conforming changes to the enumeration of 
the Supplementary Material of Rule 124 based on the elimination of the 
text related to the Basis Price Order.
Hybrid Market Trading Environment
    The Hybrid Market rules were implemented in a series of phases 
beginning with a pilot on December 14, 2005 through February 27, 
2007.\5\ During the implementation process, the Exchange continually 
reviewed the operation of the Hybrid Market and changes in the behavior 
of market participants resulting from the new rules in order to assess 
whether the rules resulted in operations as envisioned by the Hybrid 
Market initiative. As a result of this continual

[[Page 8732]]

review, NYSE amended certain rules to better accomplish the goals 
intended with the creation of the Hybrid Market.\6\
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    \5\ See Securities Exchange Act Release No. 53539 (March 22, 
2006), 71 FR 16353 (March 31, 2006) (SR-NYSE-2004-05) (establishing 
the Hybrid Market).
    \6\ See, e.g., Securities and Exchange Act Release Nos. 54820 
(November 27, 2006), 71 FR 70824 (December 6, 2006) (SR-NYSE-2006-
65) (amendment to clarify certain definitions and systematic 
processing of certain orders in the Hybrid Market); 55316 (February 
20, 2007), 72 FR 8825 (February 27, 2007) (SR-NYSE-2007-14) 
(amendment of Exchange Rule 70.30 to change the concept of a Crowd 
from being ``specific areas on the Floor where Floor brokers are 
generally able to see and hear the business'' conducted at each 
post/panel to ``specific identifiable areas where Floor brokers are 
able to conduct business at each post/panel within the Crowd''); 
54427 (September 12, 2006), 71 FR 54862 (September 19, 2006) (SR-
NYSE-2006-58) (amendment of Exchange Rule 70.30 to change the 
concept of a Crowd as ``any five contiguous panels'' to ``specific 
identifiable areas on the Floor where Floor brokers are generally 
able to see and hear the business conducted at each post/panel 
within the Crowd''); 54086 (June 30, 2006), 71 FR 38953 (July 10, 
2006) (SR-NYSE-2006-24) (amendment to Exchange Rule 104(d)(i) to 
conform the minimum display requirements for reserve interest for 
specialists and Floor brokers such that specialists, like Floor 
brokers, only be required to provide at least 1,000 shares displayed 
interest at the bid and offer in order to have reserve interest on 
that side of the quote).
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    In the current more electronic Hybrid Market, orders received by 
Exchange systems that are marketable upon entry are eligible to be 
immediately and automatically executed by Exchange systems. The 
Exchange believes that, in this current environment, order types that 
require manual intervention pose significant impediments to the 
efficient functioning of the Hybrid Market. As such, the Exchange seeks 
to eliminate the order types described below.
Description of Manual Order Types
    An Alternative Order--Either/Or Order allows a customer to submit 
two separate orders simultaneously for the same security. For example, 
an order may be entered to sell (buy) XYZ at a limit price or sell 
(buy) on stop. If the order is for one unit of trading (generally 100 
shares), when one of the designated alternative orders is executed 
(i.e., the sale of the security at its limit price), then the other 
alternative (i.e., the sale of a security on a stop) is cancelled. 
Pursuant to Rule 13, where the order is for more than one unit of 
trading, the number of units executed determines the amount of the 
alternative order to be treated as cancelled. Therefore, if the order 
was to sell (buy) 300 XYZ at a limit price or sell (buy) 300 shares on 
stop and only 200 shares of XYZ were executed at the limit price, then 
only 200 shares of the sell stop order would be cancelled.
    Orders Good Until a Specified Time are market or limited price 
offers which are to be represented in the Trading Crowd until a 
specified time, after which time such orders or the portion thereof not 
executed are to be treated as cancelled.
    A Scale Order is an order to buy (sell) a security which specifies 
the total amount to be bought (sold) at specified price variations.
    A Switch Order-Contingent Order is an order for the purchase (sale) 
of one security and the sale (purchase) of another security at a 
stipulated price difference.
    The Limited Order, With or Without Sale, is a type of odd-lot order 
that may be filled on an effective round-lot transaction or an 
effective bid (when the price of a limit order to sell is at or above 
the Exchange's best bid) or offer (when a limit order to buy is at or 
below the Exchange best offer), whichever occurs first after receipt of 
the order by Exchange systems.
    The Basis Price Order is a type of odd-lot order that may be filled 
at a specified ``Basis Price'' \7\ provided that the Basis Price has 
been established and approved by a Floor Official, the order is marked 
``On Basis'' and was received at least a half hour before the close of 
the market. Basis Prices are established by the specialist where there 
has been no round-lot sale in the subject security during the trading 
session, the spread between the closing bid and offer prices is two 
points or more and the specialist has been given an On Basis order. The 
Basis Price must be reviewed and approved by a Floor Official. A Basis 
Price order to sell is filled at the Basis Price plus any 
differential,\8\ and a Basis Price order to buy is filled at the Basis 
Price minus any differential.
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    \7\ See Exchange Rule 124.10 (explaining how Basis Prices are 
established).
    \8\ A ``differential'' is a stated charge (historically \1/8\ of 
a point) per share of odd-lots executed by the odd-lot dealer. The 
differential is a legacy of a time when the Exchange had odd-lot 
dealers who were solely responsible for the execution of odd-lots on 
the Exchange.
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Proposed Elimination of the Manual Order Types
    The Exchange proposes to eliminate the above-described orders as 
acceptable order types by Exchange systems. The manual order types 
described above are remnants of a time when the Exchange functioned 
completely as a manual auction market. Each of the aforementioned order 
types cannot be processed electronically. Today, when one of these 
orders is submitted to the Exchange, it is printed on paper for manual 
processing on the Floor. As a result of the current speed of order 
execution in the Hybrid Market, orders that are printed to paper for 
manual execution run the very real risk of ``missing the market.''
    In addition, the inefficiency of these order types is made obvious 
by the fact that they are infrequently used by market participants. A 
review of the different types of orders received by the Exchange during 
the week of September 17, 2007 through September 21, 2007 revealed that 
none of these orders were utilized by market participants.
    Inherent in most of these order types are specific trading 
strategies whose desired effect can be replicated by means of 
electronic trading. For example, the desired result of a Scale Order 
may be achieved by the use of the Floor broker agency interest (``e-
Quote'') at specified price points. Member organizations may achieve 
the desired outcome of a Switch Order-Contingent Order by combining 
orders with instructions for automatic execution. The Exchange believes 
that the elimination of these order types will further the protection 
of investors since the manual handling of the trading strategies 
inherent to these order types places its customers at risk of missing 
the market or inferior price executions. The use of current electronic 
functionality available in the Hybrid Market will provide Exchange 
customers with better execution opportunities.
    The Exchange states that its commitment to provide its market 
participants with the ability to have their orders executed in the most 
efficient manner necessitates the elimination of the manual order types 
described above. As such, the Exchange seeks to delete the references 
to those order types from Rules 13 and 124. In addition, the Exchange 
seeks to make conforming changes to Rule 124 in order to ensure 
accurate consecutive enumeration of the rule text.
2. Statutory Basis
    The proposed rule change is consistent with the provisions of 
section 6 of the Act,\9\ in general, and with sections 6(b)(5) of the 
Act,\10\ in particular, in that the proposal 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. 
NYSE believes that the proposed rule change accomplishes these goals by 
rescinding legacy order types that place customers at risk of missing 
the market and possibly

[[Page 8733]]

receiving inferior priced executions. NYSE believes that rescission of 
these order types promotes the use of electronic functionality and 
therefore would provide its customers with better execution 
opportunities.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NYSE 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

    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 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) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\13\ 
However, Rule 19b-4(f)(6)(iii) \14\ permits the Commission to 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 to immediately remove a 
current impediment to the efficient operation of its market and to 
provide customers with better execution opportunities. The Commission 
hereby grants the Exchange's request and designates the proposal as 
operative upon filing.\15\
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    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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 complied with this requirement.
    \14\ Id.
    \15\ 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 No. SR-NYSE-2008-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2008-11. 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, 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 
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-2008-11 and should be submitted on or before March 6, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-2695 Filed 2-13-08; 8:45 am]

BILLING CODE 8011-01-P