Document ID: SEC-2006-1417-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2006-11-02T05:00Z

[Federal Register: November 2, 2006 (Volume 71, Number 212)]
[Notices]               
[Page 64594-64596]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02no06-85]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54653; File No. SR-NYSE-2006-94]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Rule 122 (Orders With More Than One Broker) Until the 
Availability of Full d-Quote Functionality in a Particular Security or 
February 5, 2007, Whichever Comes First

 October 26, 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 October 25, 2006, the 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 by the Exchange. NYSE filed 
the proposed rule change pursuant to Section 19(b)(3) of the Act \3\ 
and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposed rule 
change 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\ 15 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 seeks to amend Exchange Rule 122 (Orders with More than One 
Broker) for a period of time commencing from the operative date of this 
proposed rule change until the availability of full d-Quoting \5\ 
functionality in a particular security or February 5, 2007, whichever 
comes first. The proposed rule change would permit Floor brokers to 
maintain discretionary e-Quotes (``d-Quotes'') and CAP-DI orders \6\ in 
a security on the same side of the market for the same order that are 
capable of trading at the same price. 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 the Secretary, and at the Commission's 
Public Reference Room.
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    \5\ See Securities Exchange Act Release No. 54577 (October 5, 
2006), 71 FR 60208 (October 12, 2006).
    \6\ See Exchange Rules 13 and 123A.30(a). Exchange Rule 
123A.30(a) describes a CAP-DI order as: ``The elected or converted 
portion of a `percentage order that is convertible on a 
destabilizing tick and designated immediate execution or cancel 
election' (``CAP-DI order'') may be automatically executed and may 
participate in a sweep.''
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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 Exchange proposes to permit Floor brokers to enter 
discretionary e-Quotes and CAP-DI orders in a security on the same side 
of the market for the same order that are capable of trading at the 
same price for a limited

[[Page 64595]]

period of time--that is, from the operative date of this proposed rule 
change until the availability of full d-Quoting functionality in a 
particular security or February 5, 2007, whichever comes first. The 
Exchange believes that discretionary e-Quote capabilities will be fully 
implemented in Phase IV of the Hybrid Market,\7\ which is scheduled to 
commence rolling out in late December 2006. This amendment will allow 
Floor brokers to participate electronically in certain trades they 
would otherwise miss while full d-Quoting functionality is being 
implemented. As such, the amendment enhances the competitive position 
between Floor brokers (on behalf of customer orders) and specialist 
proprietary trading that d-Quoting was designed to assist.
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    \7\ The Commission approved the Hybrid Market on March 22, 2006. 
See Securities Exchange Act Release No. 53539 (March 22, 2006), 71 
FR 16353 (March 31, 2006).
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    Currently, d-Quote functionality permits Floor brokers to assign 
discretionary price instructions to their e-Quotes. Pursuant to these 
instructions, a d-Quote may trade with marketable and non-marketable 
incoming orders, by trading with such orders at a price better than the 
Exchange best bid or offer. Currently, the functionality to interact 
with a non-marketable incoming order (i.e., an order that would become 
the new Exchange best bid or offer) has not been implemented. However, 
specialists are able to interact with non-marketable incoming orders 
via their algorithmic systems subject to certain requirements. 
Specifically, a specialist can send electronically a ``hit bid'' or 
``take offer'' message based on an incoming order that would create a 
new best bid or best offer. This allows the specialist to trade 
electronically with the newly published bid or offer. Until d-Quoting 
is fully implemented, a Floor broker only has the ability to interact 
manually with such new bid or offer. Accordingly, the speed disparity 
between a manual action and an electronic one places the Floor broker 
at a competitive disadvantage.
    A Floor broker can seek to trade at the bid or offer price by 
manually ``hitting the bid'' or ``taking the offer.'' They can also 
send a CAP-DI order to the specialist for conversion or election at 
that price. Marketable CAP-DI orders are automatically converted and 
trade along with specialist proprietary executions. Accordingly, by 
allowing Floor brokers to have CAP-DI orders and d-Quotes, the Floor 
brokers retain the ability to compete with specialist algorithmic 
trading for executions involving marketable incoming orders via 
discretionary pricing instructions, but do not miss participating in 
executions when specialists algorithmically hit a bid or take an offer.
    Exchange Rule 122 currently prevents Floor brokers who have 
transmitted part of an order to a specialist for execution (such as a 
CAP-DI order) from bidding or offering on behalf of the retained 
portion of such order at a price at which the transmitted part may be 
quoted or executed. Because a CAP-DI may execute at the same price as a 
d-Quote, the Exchange seeks to amend Rule 122 to permit Floor brokers 
to maintain both d-Quotes and CAP-DI orders in the same security for 
the account of the same principal that are capable of being executed at 
the same price.
    This filing applies to those securities subject to the Pilot \8\ 
currently operating in conjunction with the implementation of Hybrid 
Market Phase III.
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    \8\ See Securities Exchange Act Release Nos. 54578 (October 5, 
2006), 71 FR 60216 (October 12, 2006) and 54610 (October 16, 2006), 
71 FR 62142 (October 23, 2006).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \10\ in particular, in that it 
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. The Exchange believes that the 
proposed rule change is also designed to support the principles of 
Section 11A(a)(1) of the Act \11\ in that it seeks to assure 
economically efficient execution of securities transactions, the 
practicability of brokers executing investors' orders in the best 
market, and an opportunity for investors' orders to be executed without 
the participation of a dealer.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 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

    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) 
by its terms, become operative for 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, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act \12\ 
and Rule 19b-4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing. 
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 and designate the proposed 
rule change immediately operative upon filing. The Commission believes 
that waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest. Specifically, the 
Commission believes that the proposal should enable floor brokers to 
compete with specialists in certain trades on behalf of their 
customers, while the Exchange is in the process of implementing the d-
Quote function. Accordingly, the Commission designates the proposal to 
be effective and operative upon filing with the Commission until the 
availability of full d-Quote functionality in a particular security or 
February 5, 2007, whichever comes first.\15\
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 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 proposed rule change 
if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors,

[[Page 64596]]

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-NYSE-2006-94 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-2006-94. 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-2006-94 and should be submitted on or before 
November 24, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
Nancy M. Morris,
Secretary.
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    \16\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E6-18450 Filed 11-1-06; 8:45 am]

BILLING CODE 8011-01-P