Document ID: SEC-2007-0258-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-02-20T05:00Z

[Federal Register: February 20, 2007 (Volume 72, Number 33)]
[Notices]               
[Page 7804-7806]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20fe07-36]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55281; File No. SR-NYSE-2007-07]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Extension of the Crossing Session III and IV Pilot

February 12, 2007.
    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 26, 2007, 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 substantially prepared by the Exchange. 
The Exchange filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder, which 
renders it effective upon filing with the Commission.\4\ 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

    The NYSE proposes to extend until February 1, 2008 the following 
pilot programs (``Pilots''): Crossing Session III, for the execution of 
guaranteed price coupled orders by member organizations to fill the 
balance of customer orders at a price that was guaranteed to a customer 
prior to the close of the Exchange's 9:30 a.m. to 4:00 p.m. trading 
session; and Crossing Session IV, whereby an unfilled balance of an 
order may be filled at a price such that the entire order is filled at 
no worse price than the Volume Weighted Average Price (``VWAP'') for 
the subject security. The text of the proposed rule change is available 
at the 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, the NYSE 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 
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
    In SR-NYSE-2002-40,\5\ the Commission approved an order 
establishing two new crossing sessions (Crossing Sessions III and IV) 
in the Exchange's Off-Hours Trading Facility (``OHTF'') as a pilot 
program (``Pilot''), expiring on December 1, 2004. Subsequently, the 
Commission published two notices of filing and immediate effectiveness 
of a proposed rule change extending the Pilot until

[[Page 7805]]

February 1, 2006 \6\ and until February 1, 2007.\7\
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    \5\ See Securities Exchange Act Release No. 48857 (December 1, 
2003), 68 FR 68440 (December 8, 2003).
    \6\ See Securities Exchange Act Release No. 51091 (January 28, 
2005), 70 FR 6484 (February 7, 2005) (SR-NYSE-2005-01).
    \7\ See Securities Exchange Act Release No. 53275 (February 13, 
2006), 71 FR 8626 (February 17, 2006) (SR-NYSE-2006-02).
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    This proposal extends the Pilot until February 1, 2008.\8\ Crossing 
Sessions III and IV are described below.
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    \8\ The NYSE confirmed that the Pilots will continue to function 
in the same manner that they operated prior to the one-year 
extension. Telephone conversation between Jean Walsh, Principal Rule 
Counsel, Office of General Counsel, NYSE, and Tim Fox, Special 
Counsel, Division of Market Regulation, Commission and Johnna B. 
Dumler, Attorney, Division, Commission on February 8, 2007.
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Background
    The purpose of the original proposed rule change was to add two 
additional ``Crossing Sessions'' (Crossing Sessions III and IV) to the 
Exchange's OHTF. Before the proposed rule change, the OHTF consisted of 
Crossing Sessions I and II. Crossing Session I permits the execution, 
at the Exchange's closing price, of single-stock, single-sided closing 
price orders and crosses of single-stock, and closing price buy and 
sell orders. Crossing Session II permits the execution of crosses of 
multiple-stock (``basket'') aggregate priced buy and sell orders. For 
Crossing Session II, trade reporting is accomplished by reporting to 
the Consolidated Tape the total number of shares and the total market 
value of the aggregate-price trades. There is no indication of the 
individual component stocks involved in the aggregate-price 
transactions.
Crossing Session III
    The Exchange is proposing to extend until February 1, 2008, the 
Pilot in Crossing Session III. Crossing Session III is described in 
Exchange Rule 907. This Pilot would continue to allow for the execution 
on the NYSE of ``guaranteed price coupled orders'' whereby member 
organizations could fill the unfilled balance of a customer order at a 
price which was guaranteed to the customer prior to the close of the 
Exchange's 9:30 a.m. to 4:00 p.m. trading session.
The Granting of ``Upstairs Stops''
    In serving their institutional customers, member firms may offer 
them a guarantee that a large size order will receive no worse than a 
particular price. Such a practice is usually referred to as an 
``upstairs stop'' meaning that the firm guarantees that its customer's 
order will be executed at no worse price than the agreed-upon, 
guaranteed price, with the member firm trading for its own account, if 
necessary, to effectuate the guarantee.
    Typically, a member firm will seek to execute as much of the order 
as possible during the trading day at or below the ``stop'' price (in 
the case of a buy order) or at or above the ``stop'' price (in the case 
of a sell order). Any portion of the order not filled during the 
trading day will be completed after hours, with the firm either buying 
from, or selling to, its customer at a price which ensures that the 
entire order is executed at a price which is no worse than the ``stop'' 
price.
    Member firms typically execute the unfilled balance of the order, 
after the U.S. Consolidated Tape is closed, in the London over-the-
counter market, where trades are not reported in real time. The purpose 
of this is simply to minimize the possibility that other market 
participants may ascertain the firm's, or the customer's inventory 
position, and possibly trade in the subject security to the detriment 
of the firm that granted the ``upstairs stop.'' It is more transparent 
to print the trade in the NYSE primary market during U.S. Consolidated 
Tape hours.
Crossing Session IV
    The Exchange is also proposing to extend the Pilot in Crossing 
Session IV (which is also described in NYSE Rule 907), until February 
1, 2008. Crossing Session IV is a facility whereby member organizations 
may fill the unfilled balance of a customer's order at a price such 
that the overall order is filled at a price that is no worse than the 
VWAP for the subject security on that trading day. The member 
organization would be required to document its VWAP agreement with the 
customer and the basis upon which the VWAP price would be determined.
Operation of Crossing Sessions
    As described in NYSE Information-Memos 04-30 and 05-57 and NYSE 
Rule 907, Crossing Sessions III and IV would continue to operate as 
follows:
    (i) The original order as to which an ``upstairs stop'' or ``VWAP'' 
has been granted may be of any size;
    (ii) The customer must have received a ``stop'' (guaranteed price) 
or VWAP for the entire order;
    (iii) The member firm must record all details of the order, 
including the price it has guaranteed its customer or that the entire 
order will be filled at no worse than the VWAP;
    (iv) An order or the unfilled balance of an order that would be 
executed in Crossing Session III or Crossing Session IV may be of any 
size;
    (v) The customer's order must be executed in Crossing Session III 
or Crossing Session IV at a price that ensures that the entire order is 
executed at a price that is no worse than the guaranteed price or the 
VWAP;
    (vi) Orders may be entered in Crossing Session III or Crossing 
Session IV between 4 p.m. and 6:30 p.m., and must be identified as 
either a Crossing Session III or Crossing Session IV order;
    (vii) Member firms will receive an immediate report of execution 
upon entering an order into Crossing Session III or Crossing Session 
IV; (viii) Orders may be entered into Crossing Session III for 
execution at prices outside the trading range in the subject security 
during the 9:30 a.m. to 4 p.m. trading session;
    (ix) Orders may not be entered into Crossing Session III or 
Crossing Session IV in a security that is subject to a trading halt at 
the close of the regular 9:30 a.m. to 4 p.m. trading session; and
    (x) At 6:30 p.m., the Exchange will print trades reported through 
Crossing Session III as guaranteed price coupled orders or in Crossing 
Session IV as VWAP executions.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \9\ that an Exchange 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.
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    \9\ 15 U.S.C. 78f(b)(5).
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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) 
become operative for 30 days from the date on which it was filed, or 
such shorter time

[[Page 7806]]

as the Commission may designate, it has become effective pursuant to 
Section 19(b)(3)(A) \10\ and Rule 19b-4(f)(6) thereunder.\11\ 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    NYSE has asked the Commission to waive the five-day pre-filing 
notice requirement and the 30-day operative delay. The Commission 
believes such waivers are consistent with the protection of investors 
and the public interest because they would allow the Pilots to operate 
without interruption.\12\ For this reason, the Commission designates 
the proposal to be operative upon filing with the Commission.
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    \12\ For purposes only of waiving the 30-day pre-operative 
period, 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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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 e-mail to rule-comments@sec.gov. Please include File 

Number SR-NYSE-2007-07 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-2007-07. 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 will also be available for inspection and copying at the 
principal office of the 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-2007-07 and should be submitted on or before March 
13, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-2848 Filed 2-16-07; 8:45 am]

BILLING CODE 8011-01-P