Document ID: SEC-2007-1733-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-12-20T05:00Z

[Federal Register: December 20, 2007 (Volume 72, Number 244)]
[Notices]               
[Page 72431-72432]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20de07-108]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56958; File No. SR-NYSE-2006-99]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving Proposed Rule Change as Modified by Amendment Nos. 2 and 3 
Thereto Relating to Rule 104 (Dealings by Specialists)

December 13, 2007.

I. Introduction

    On November 9, 2006, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') submitted to 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\ a 
proposed rule change to amend Exchange Rule 104 to allow the 
specialist's algorithm systems to generate trading messages that 
provide supplemental specialist volume to partially or completely fill 
an order at a sweep price. The Exchange filed and withdrew Amendment 
No. 1 to the proposal on October 24, 2007 and October 29, 2007, 
respectively. The Exchange filed Amendment Nos. 2 and 3 on October 29, 
2007 and November 5, 2007, respectively. The proposed rule change was 
published for public comment in the Federal Register on November 13, 
2007.\3\ The Commission received no comment letters regarding the 
proposed rule change. This order approves the proposed rule change, as 
amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 56747 (November 5, 
2007), 72 FR 63946 (``Notice'').
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II. Description of the Proposed Rule Change

    Currently, Rule 104(b)(i)(F) permits the specialist proprietary 
algorithm (``Specialist Algorithm'') to generate a trading message to 
provide supplemental specialist volume at the Exchange published best 
bid or offer (``BBO''). This trading message enables specialists, 
through the use of their algorithms, to provide more volume where, 
technically, there is no other interest available to trade with the 
customer order.
    The Exchange seeks to further provide its customers with additional 
opportunities for a better priced execution by amending Rule 
104(b)(i)(F) to allow the specialist to also partially or completely 
fill an order beyond the Exchange published best bid or offer at a 
sweep price.\4\ The Specialist Algorithm will generate this trading 
message in reaction to one order at a time and only as that order is 
entering Exchange systems. Additionally, this trading message will only 
be able to interact with the targeted order to add volume at one place, 
either at the Exchange best bid or offer or at a particular sweep 
price. In other words, the specialist will not have two opportunities 
to provide supplemental specialist volume to the incoming order at the 
Exchange best bid or offer and also at a particular price point should 
the order sweep the Display Book. There will be no change with respect 
to priority and parity. The specialist's algorithm will make a 
determination about where and how much supplemental specialist volume 
to provide based on the state of the book information when the order is 
received by Exchange systems.
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    \4\ The instant filing was initially filed with the Commission 
on November 9, 2006. In the notice, the Exchange stated that the 
proposed functionality inadvertently became operational in Exchange 
systems without Commission approval on or about January 24, 2007. 
The proposed rule change, as amended, is intended to codify the 
current Exchange system functionality. See Notice, supra note 3, at 
note 6.
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    The specialist would not be required to buy the full size remaining 
of the sell order at the particular sweep price. The Exchange states 
that there is no disadvantage to the customer in allowing the 
specialists to partially fill an order at a particular sweep price 
especially when applicable rules only allow the supplemental specialist 
volume to interact with the order when no other interest exists.

III. Discussion

    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. In particular, 
the Commission finds that the proposed rule change is consistent with 
section 6(b)(5) of the

[[Page 72432]]

Act \5\ which requires an Exchange to have rules that are 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.\6\ Specifically, the Commission believes that the proposal 
should benefit investors and the public interest by enabling customers 
to receive better priced executions than they otherwise would have 
received. Additionally, when specialists choose, through their 
algorithms, to partially or completely fill orders beyond the Exchange 
BBO, the Commission notes that the Exchange has represented that its 
systems would not permit a trading message to provide supplemental 
specialist volume that would trade-through a protected quotation in 
violation of Rule 611 of Regulation NMS under the Act.\7\ The 
Commission also notes that the supplemental specialist volume would 
yield to displayed and reserve interest (i.e., customer limit orders, 
Floor broker agency interest and specialist interest).
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    \5\ 15 U.S.C. 78f(b)(5).
    \6\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \7\ 17 CFR 242.611.
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-NYSE-2006-99), as amended, is 
approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-24725 Filed 12-19-07; 8:45 am]

BILLING CODE 8011-01-P