Document ID: SEC-2006-0268-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange, Inc.
Posted Date: 2006-03-02T05:00Z

[Federal Register: March 2, 2006 (Volume 71, Number 41)]
[Notices]               
[Page 10736-10738]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02mr06-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53359; File No. SR-NYSE-2006-09]

 
Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Automatic Conversion of CAP-DI Orders

February 24, 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 February 21, 2006, the New York Stock Exchange, Inc. (``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. NYSE 
filed the proposed rule change as effecting a change in an existing 
order-entry or trading system pursuant to section 19(b)(3)(A) of the 
Act \3\ and Rule 19b-4(f)(5) thereunder,\4\ which renders the proposal 
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)(5).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE is proposing to amend Exchange Rule 123A.30(a)(iv)(P), which 
was part of the pilot (``Pilot'') \5\ which put into operation Phase 1 
of the NYSE HYBRID MARKET SM (``Hybrid Market'') initiative, 
as proposed in SR-NYSE-2004-05 \6\ and amendments thereto (``Hybrid 
Market filings'') and certain system changes discussed in SR-NYSE-2005-
57.\7\ The text of the proposed rule change is available on the 
Exchange's Web site (http://www.nyse.com), at the principal office of 

the Exchange, and at the Commission's Public Reference Room.
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    \5\ See Securities Exchange Act Release No. 52954 (December 14, 
2005), 70 FR 75519 (December 20, 2005).
    \6\ See Securities Exchange Act Release Nos. 50173 (August 10, 
2004), 69 FR 50407 (August 16, 2004); 50667 (November 15, 2004) 69 
FR 67980 (November 22, 2004); and 51906 (June 22, 2005), 70 FR 37463 
(June 29, 2005) See also Amendment No. 6, filed on September 16, 
2005, and Amendment No. 7, filed on October 11, 2005.
    \7\ See Securities Exchange Act Release No. 52362 (August 30, 
2005), 70 FR 53701 (September 9, 2005). While submitted as effective 
upon filing, the Exchange intended to implement these changes upon 
approval of the Hybrid Market filings by the Commission, if such 
approval is granted.
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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

I. Purpose
    The Exchange proposed a Pilot to put into operation Phase 1 of the 
Hybrid Market initiative with respect to a group of securities, known 
as Phase 1 \8\ Pilot securities (``Pilot securities''). Following 
Commission approval, the Pilot commenced during the week of December 
12, 2005 and will terminate the earlier of: (1) March 14, 2006, or (2) 
Commission approval of the Exchange's Hybrid Market proposal, if 
granted.
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    \8\ See Securities Exchange Act Release No. 51906 (June 22, 
2005), 70 FR 37463 (June 29, 2005).
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    Commencing with the Pilot; the Exchange systemically ensures that 
the specialist's participation when trading along with CAP-DI orders is 
in accordance with the parity requirements of Exchange Rule 123A.30. 
The system assigns the proper number of shares to the specialist and 
CAP-DI orders. The Exchange filed SR-NYSE-2005-57 \9\ for immediate 
effectiveness pursuant to section 19(b)(3)(A) of the Act \10\ and Rule 
19b-4(f)(5) thereunder \11\ to effect this change.
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    \9\ See supra note 7.
    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(5).
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    Automatic Conversions of CAP-DI Orders. Current Exchange Rule 
123A.30 provides that specialists have the ability, subject to certain 
restrictions noted in the rule, to convert CAP-DI orders to participate 
in transactions or to bid or offer, without an electing trade.
    Exchange Rule 123A.30(a)(P) \12\ provides in part that the elected 
or converted portion of a ``percentage order that is convertible on a 
destabilizing tick and designated immediate execution cancel election'' 
(``CAP-DI order'') may be automatically executed. An elected or 
converted CAP-DI order on the same side of the market as an 
automatically executed electing order may participate in a transaction 
at the bid (offer) price if there is volume associated with the bid 
(offer) remaining after the electing order is filled in its entirety. 
An elected or converted CAP-DI order on the contra-side of the market 
as an automatically executed electing order may participate in a 
transaction at the bid (offer) price if there is volume remaining in 
the electing order.
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    \12\ This rule is parallel to amendments made to Rule 123A.30. 
See Securities Exchange Act Release No. 51906 (June 22, 2005), 70 FR 
37463 (June 29, 2005).
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    In addition, the Exchange added new section (iv)(P) to proposed 
Exchange Rule 123A.30(a)(P) to provide that when a specialist is 
bidding or offering and an automatic execution occurs with such bid/
offer, marketable CAP-DI orders on the Display Book[reg] on the same 
side as the specialist's interest will be automatically converted to 
participate in this execution, with the system assigning the proper 
number of shares to the specialist and auto-converted CAP-DI orders, as 
discussed above. This will allow CAP-DI orders to better participate in 
executions.
    However, in certain instances, an automatic conversion of 
marketable CAP-DI orders will not occur even though the specialist is 
trading for its own account. This will occur where the execution that 
included automatically converted CAP-DI orders elects a contra-side 
stop or stop limit order. In this situation, pursuant to current 
Exchange Rule 123A.40, the specialist, as party to the election of the 
stop order, owes such elected stop order an execution at the same price 
as the specialist traded. The execution of such stop orders, in which 
the specialist is the contra-party, may be manual \13\ or 
automatic,\14\ depending upon whether

[[Page 10737]]

any specialist interest remains at the execution price. In either 
situation, marketable CAP-DI interest at that price will not be 
automatically converted to participate along with the specialist in the 
execution of such elected stop order. The specialist is, however, 
alerted to the fact that there are CAP-DI orders on the Display 
Book[reg] capable of trading so that is can take appropriate action and 
manually trade such CAP-DI interest.
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    \13\ If there is no specialist interest remaining in the bid/
offer, and the specialist must guarantee an execution to the stop 
order at the electing price pursuant to Exchange Rule 123A.40, the 
specialist must do a manual transaction to guarantee that the stop 
order receives the same price as the specialist.
    \14\ If there is specialist interest remaining in the bid/offer 
and the specialist must guarantee an execution to the stop order at 
the electing price pursuant to Exchange Rule 123A.40, the Display 
Book system will automatically execute the remaining specialist 
interest against the elected stop order at the same price the 
specialist traded.
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    Modification to the Pilot. The Exchange is proposing to modify 
Exchange Rule 123A.30(a)(iv)(P) to clarify that when a specialist is 
bidding, offering, or trading and an automatic execution occurs with 
the specialist's proprietary interest, which elects contra-side stop or 
stop limit orders, marketable CAP-DI orders on the Display Book[supreg] 
on the same side as the specialist will be automatically converted to 
participate in the execution of such contra-side stop or stop limit 
orders with the system assigning the proper number of shares to the 
specialist and CAP-DI orders. In other words, in all circumstances 
where the specialist is trading for its own account and the specialist, 
as party to the election of a stop order, owes an elected stop order an 
execution at the same price as the specialist traded pursuant to 
current Exchange Rule 123A.40, an automatic conversion of marketable 
CAP-DI orders will occur. This modification, however, will not effect 
the proper allocation of shares to CAP-DI orders.
     The Exchange believes that this modification is beneficial for the 
market in that it reduces the chances for error by removing the 
responsibility from the specialist to manually ensure the CAP-DI 
interest trading is allocated correctly. This will allow CAP-DI orders 
to better participate in executions. This modification is part of a 
package of software corrections to the Pilot which the Exchange would 
like to implement as quickly as possible. This modification will expire 
upon the termination of the Pilot.
2. Statutory Basis
     The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\15\ in general, and furthers the 
objectives of section 6(b)(5) of the Act,\16\ in particular, in that 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 believes that the proposed rule change is also designed to 
support the principles of section 11A(a)(1) of the act \17\ 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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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ 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.\18\
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    \18\ See telephone conversation between Jeffrey Rosenstrock, 
Principal Rule Counsel, Market Surveillance, NYSE, and Kelly Riley, 
Assistant Director, Division of Market Regulation, Commission, dated 
February 23, 2006.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission action

    Because the proposed rule change effects a change in an existing 
order-entry or trading system of a self-regulatory organization that 
does not:
    (i) significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; or
    (iii) have the effect of limiting access to or availability of the 
system, it has become effective pursuant to section 19(b)(3)(A) of the 
Act \19\ and paragraph (f)(5) of Rule 19b-4 thereunder.\20\ The 
Exchange believes that this modification to the Pilot would allow the 
Pilot to continue in effect and reduce the chance of error by the 
specialist by allowing the system to automatically convert CAP-DI 
orders and execute with the proper allocation.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 20 CFR 240.19b-4(f)(5).
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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-comment@sec.gov. Please include 

File Number SR-NYSE-2006-09 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-2006-09. 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 Commissiona 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-2006-09 and should be submitted on or before March 
23, 2006.

[[Page 10738]]

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. 06-1962 Filed 3-1-06; 8:45 am]

BILLING CODE 8010-01-M