Document ID: SEC-2006-0740-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2006-06-08T04:00Z

[Federal Register: June 8, 2006 (Volume 71, Number 110)]
[Notices]               
[Page 33328-33329]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jn06-95]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53932; File No. SR-NYSE-2006-01]

 
Self-Regulatory Organizations; New York Stock Exchange, Inc. (n/
k/a New York Stock Exchange LLC); Notice of Filing of Proposed Rule 
Change Relating to Exchange Rule 1000 (NYSE Direct+)

June 1, 2006.
    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 January 17, 2006, the New York Stock Exchange, Inc.\3\ (n/k/a 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 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.
    \3\ The Exchange is now known as the New York Stock Exchange 
LLC. See Securities Exchange Act Release No. 53382 (February 27, 
2006), 71 FR 11251 (March 6, 2006).
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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 Exchange Rule 1000 (NYSE 
Direct+[supreg]) to eliminate subsection (v), an exception to Exchange 
Rule 1000 which suspends the Exchange's Direct+ facility if the 
specialist publishes a bid and/or offer that is more than five cents 
away from the last reported transaction price when an Exchange Rule 127 
block cross transaction is being executed.\4\ The Exchange proposes to 
replace this procedure with a rule that requires the specialist to 
quote a 100 x 100 share market price when all Exchange Rule 127 block 
cross transactions are being executed, regardless of the amount the 
cross price is away from the last reported transaction price in the 
subject security on the Exchange. The text of the proposed rule change 
is available on the Exchange's Web site (http://www.nyse.com), at the 

Exchange's Office of Secretary, and at the Commission's Public 
Reference Room.
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    \4\ On March 22, 2006, the Commission approved the Exchange's 
proposal to establish a ``Hybrid Market.'' See Securities Exchange 
Act Release No. 53539, 71 FR 16353 (March 31, 2006) (``Hybrid Market 
Approval Order''). In the Hybrid Market Approval Order, the 
Commission approved the Exchange's plan to implement the Hybrid 
Market in multiple phases. To date, the Exchange has not implemented 
the approved changes to Exchange Rule 1000. The Commission notes 
that in this proposal, the Exchange proposes to amend existing 
Exchange Rule 1000, rather than the text of Rule 1000 as approved in 
the Hybrid Market Approval Order. Once the Exchange implements the 
approved text to Exchange Rule 1000, the Commission notes that Rule 
1000, as approved in the Hybrid Market Approval Order, would 
supersede the changes proposed herein.
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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 Exchange 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 these 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 aspects 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 simplify and improve 
the protective measures afforded to Direct+ customers when automatic 
executions are delayed due to the completion of an Exchange Rule 127 
block cross transaction.
    Exchange Rule 1000 provides that auto ex orders receive an 
immediate, automatic execution against orders reflected in the 
Exchange's published quotation and are immediately reported as Exchange 
transactions. NYSE Direct+ currently provides for the automatic 
execution of straight limit orders (``auto ex orders'') of 1,099 shares 
or less (10,000 shares or less for Investment Company Units, as defined 
in paragraph 703.16 of the Listed Company Manual, and any securities 
governed by the same rules as Investment Company Units, such as 
streetTRACKS[supreg] Gold Shares,\5\ and Trust Issued Receipts, such as 
HOLDRs, as defined in Exchange Rule 1200) against trading interest 
reflected in the Exchange's published quotation. Exchange Rule 1000 
subsections (i) through (vi) allow for exceptions to Exchange Rule 
1000, making Direct+ unavailable when any exception is in place. 
Exchange Rule 1000(ii) provides that Direct+ is unavailable when the 
execution price of an automatic execution ``would be more than five 
cents away from the last reported transaction price in the subject 
security on the Exchange.'' Exchange Rule 1000(v) specifically provides 
that when a transaction outside the NYSE's published bid or offer 
pursuant to Rule 127 is in the process of being completed, the 
specialist should ``publish a bid and/or offer that is more than five 
cents away from the last reported transaction price in the subject 
security on the Exchange.'' The proposed amendment seeks to amend the 
current Rule 1000(v) procedure.
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    \5\ See Exchange Rule 1300.
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    Exchange Rule 127 (Block Positioning) describes the process 
required for proper execution of a block cross transaction. Exchange 
Rule 127 requires a member seeking to cross block orders outside the 
prevailing quotation to inform the specialist of his or her intention 
to execute the transaction at a pre-determined, specified price that is 
either a premium

[[Page 33329]]

or discount from the prevailing bid/offer. In this situation, the 
executing broker will be bidding and offering on behalf of the cross 
away from the prevailing quotation to reflect the discount or premium 
from the current market. Any limit order that is received while the 
Rule 127 trade is being effected that would better the market 
represented by the broker's bid/offer on behalf of the Rule 127 cross 
trade would be included in such trade, thereby receiving the better 
price.
    When a Rule 127 trade is being executed, Exchange Rule 1000(v) is 
triggered. The Exchange seeks to amend and simplify the current Rule 
1000(v) procedure for several reasons. First, the procedure outlined in 
Rule 1000(v), which requires the specialist to publish a bid or offer 
that is more than five cents away from the last reported transaction 
price when a Rule 127 transaction is being executed, and the proposed 
procedure, which requires the specialist to publish a 100 x 100 market 
quote during a Rule 127 transaction, have the same effect; both 
procedures would delay Direct+ for a period of time allowing the 
specialist to execute the block cross trade and disseminate a more 
accurate market price. By applying the proposed procedure for all Rule 
127 trades, regardless of the amount the cross price is away from the 
last reported transaction price in the subject security on the 
Exchange, the Exchange is simplifying its process. Second, the Exchange 
believes that quoting a price that is more than five cents away from 
the last transaction price in order to suspend automatic executions may 
not accurately reflect the price of the block cross transaction, 
particularly where the cross transaction is at a price five cents or 
less than the last reported transaction price on the Exchange.
    The Exchange also believes that the 100 x 100 market quote 
procedure set forth in the proposed amendment would lessen the 
appearance of volatility, as would happen from the ``ping-pong'' effect 
of an automatic execution at the initial bid/offer of a Rule 127 print 
outside the quote and then back to a (seemingly worse) subsequent bid/
offer. Further, the Exchange believes that this proposed rule change 
will add uniformity of process and is consistent with the Commission's 
Limit Order Display Rule \6\ and Exchange Rule 79A.15, the Commission's 
Firm Quote Rule,\7\ and Exchange Rule 104.
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    \6\ 17 CFR 242.604.
    \7\ 17 CFR 242.601.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b)(5) of the Act \8\ because it is designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, 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. The Exchange also believes 
that the proposed rule change is designed to support the principles of 
section 11A(a)(1) of the Act \9\ in that it seeks to assure 
economically efficient execution of securities transactions, make it 
practicable for brokers to execute investors' orders in the best market 
and provide an opportunity for investors' orders to be executed without 
the participation of a dealer.
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    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78k-1(a)(1).
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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 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Within 35 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 such 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 e-mail to rule-comments@sec.gov. Please include 

File Number SR-NYSE-2006-01 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2006-01. 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. Copies of such 
filing also will 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 available publicly. All submissions should refer to 
File Number SR-NYSE-2006-01 and should be submitted on or before June 
29, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-8879 Filed 6-7-06; 8:45 am]

BILLING CODE 8010-01-P