Document ID: SEC-2009-0422-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2009-03-27T04:00Z

[Federal Register: March 27, 2009 (Volume 74, Number 58)]
[Notices]               
[Page 13486-13488]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27mr09-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59613; File No. SR-NYSE-2009-27]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Amending NYSE Rule 124 To Execute the Odd-Lot Portion of a Part of a 
Round-Lot Order Pursuant to the Same Pricing Methodology Used for Odd-
Lot Orders

March 20, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on March 11, 2009, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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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 NYSE Rule 124 (Odd-Lot Orders) to 
execute the odd-lot portion of a part of a round-lot (``PRL'') order 
pursuant to the same pricing methodology used for odd-lot orders.

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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    New York Stock Exchange LLC (``NYSE'' or the ``Exchange'') proposes 
to amend Exchange Rule 124 (Odd-Lot Orders) to execute the odd-lot 
portion of a part of a round-lot (``PRL'') order pursuant to the same 
pricing methodology used for odd-lot orders.\4\
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    \4\ PRL orders are for a size within the standard unit (round-
lot) of trading, which is 100 shares for most stocks, but contains a 
portion that is smaller than the standard unit of trading, e.g. 199 
shares. It should be noted that for certain securities trading on 
the NYSE the standard unit of trading is 10 shares.
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    The Exchange notes that parallel changes are proposed to be made to 
the rules of the NYSE Alternext Exchange (formerly the American Stock 
Exchange).\5\
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    \5\ See SR-NYSEALTR-2009-27 (to be filed March 11, 2009).
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Background
    Currently, odd-lot orders on the Exchange are processed in a 
separate system on the Exchange from the Exchange systems that execute 
round-lot orders. Odd-lots are executed systemically by Exchange 
systems designated solely for odd-lot orders (the ``Odd-lot 
System'').\6\ The odd-lot System executes all odd-lot orders against 
the DMM as the contra party.\7\
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    \6\ See NYSE Rule 124(a).
    \7\ Id. Odd-lot orders are in effect netted against one another 
and executed; however, since the DMM is buying the same amount that 
he or she is selling, there is no economic consequence to the DMM in 
this type of pairing-off of orders. Any imbalance of buy or sell 
odd-lot market orders are executed against the DMM, up to the size 
of the round-lot transaction or the BID/OFFER size whichever is 
less.
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    Pursuant to NYSE Rule 124(c), after odd-lot market orders and 
marketable odd-lot limit orders are received by the Odd-lot System, 
they are automatically executed at the price of the next round-lot 
transaction in the subject security on the Exchange. Specifically, 
marketable odd-lot orders and marketable odd-lot limit orders are 
executed in time priority of receipt at the price of the next round-lot 
transaction, pursuant to the net process described in footnote 6 [sic]. 
The imbalance of marketable odd-lot orders that do not receive an 
execution as a result of the netting provision are executed in time 
priority of receipt at the price of the NBBO, subject to a volume 
limitation.\8\ Any imbalances of odd-lot limit orders that were non-
marketable upon receipt that subsequently become marketable receive an 
execution at their limit price.\9\ Marketable odd-lot orders which 
would otherwise receive a partial execution pursuant to the volume 
limitation are executed in full.\10\
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    \8\ The volume limitation in section (c) of the rule is defined 
as the lesser of either the number of shares in the last round-lot 
transaction or the number of shares available at the national best 
bid (in the case of an odd-lot order to sell), or the national best 
offer (in the case of an odd-lot order to buy).
    \9\ Pursuant to NYSE Rule 124(d) odd-lot limit orders that are 
non-marketable upon receipt that become marketable are eligible to 
be netted and executed at the price of the next round-lot 
transaction. If odd-lot limit orders do not receive an execution 
pursuant to the netting provision, then the orders are eligible to 
be executed, at its limit price, subject to the volume limitation of 
section (c) of the rule.
    \10\ As with marketable odd-lot orders, non-marketable odd-lot 
limit orders which would otherwise receive a partial execution will 
be executed in full. Non-marketable odd-lot limit orders that become 
marketable, that remain unexecuted within 30 seconds of receipt will 
be executed, in time priority of receipt, except that the orders 
will be executed at its limit price.
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    Any marketable odd-lot orders that do not receive an execution 
because of the volume limitation are executed, in time priority of 
receipt at the price of the next round-lot transaction, following 
pricing and execution procedures described above. Marketable odd-lot 
orders (including odd-lot limit orders that were non-marketable upon 
receipt and subsequently become marketable) that remain unexecuted 
within 30 seconds of receipt will be executed, in time priority of 
receipt, at the price of the NBBO (or at its limit price if the order 
is a non-marketable odd-lot limit order upon receipt that has become 
marketable). These orders are also subject to the volume limitation.
    Marketable odd-lot orders and non-marketable odd-lot limit orders 
that have become marketable and remain unexecuted prior to the close of 
trading shall be executed, in time priority of receipt at the price of 
the closing transaction, subject to the netting provision and a volume 
restriction

[[Page 13487]]

which is not to exceed the size of the closing transaction.
    The round-lot portion of a PRL is executed in the Exchange's round-
lot system and the odd-lot portion is executed in the Odd-lot System 
only if no round-lot portion of the initial PRL order is cancelled.\11\ 
Where more than one round-lot transaction is required to effect the 
complete execution of the round-lot portion of a PRL, the odd lot 
portion is executed only if the entire round-lot portion(s) of the PRL 
order as received by the Exchange is executed. Thereafter, the odd-lot 
portion is executed at the same price as the last round-lot transaction 
that is needed to completely execute all round-lot portions of the PRL.
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    \11\ See NYSE Rule 124.40.
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    Example
    An order to sell 399 shares of security XYZ is received by Exchange 
systems at 12:00:00. The 99 share portion of the order is eligible for 
execution only after the 300 share portion of the PRL order is sold. 
See table below.

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                                                   Number of       Price of
               Time of execution                    shares         execution            Customer receives
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12:00:01......................................             100          $30.22  Report of Execution 100 shares
                                                                                 at a price of $30.22.
12:01:00......................................             100           30.21  Report of Execution 100 shares
                                                                                 at a price of $30.22.
12:01:47......................................             100           30.22  Report of Execution 199 shares
                                                                                 at a price of $30.22.
12:01:47......................................              99           30.22
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Proposed Amendment to Partial Round Lot Pricing
    The Exchange believes that the most appropriate way to execute odd-
lot orders is to represent them in the round-lot auction market where 
they would interact with all other market interest and be priced in 
accordance with supply and demand dynamics. The Exchange is committed 
to the goal of integrating odd-lots into the round-lot market; however, 
the technical changes required to offer its customers the speed of 
electronic trading while preserving the benefits of having human-
moderated trading did not afford the Exchange the ability to modify its 
systems to integrate odd-lots in the round-lot market.
    The pricing methodology of Exchange Rule 124 has been amended as an 
interim measure to accommodate the pricing and execution of odd-lot 
orders in a manner based on the prevailing market.\12\ More recently in 
2007, when the Exchange modified its odd-lot pricing, Exchange systems 
were unable to execute the odd-lot portions of PRL orders consistent 
with odd-lot orders that do not contain a round-lot component. 
Specifically, in order to price the odd-lot portion of a PRL order 
pursuant to NYSE Rule 124, Exchange legacy systems responsible for 
sequencing order execution needed, but were unable to handle a number 
of variables necessary to track the odd-lot portion of a PRL order in 
the event a customer sought to cancel or replace his or her PRL. This 
systemic impediment required the Exchange to handle the execution of 
the odd-lot portion of a PRL differently from other odd-lot orders to 
ensure that customers were able to efficiently execute their PRL orders 
and receive timely information about the orders' status. Today, 
significant upgrades to the Exchange's technology \13\ now make it 
possible for Exchange systems to price all odd-lot orders consistent 
with the provisions NYSE Rule 124(c) and (d).
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    \12\ See Securities Exchange Act No. 56551 (September 27, 2007), 
73 FR 56415 (October 3, 2007)(SR-NYSE-2007-82); See also Securities 
Exchange Act No. 49536 (April 7, 2004), 69 FR 19890, 19893 (April 
14, 2004) (SR-NYSE-2003-37); Securities Exchange Act No. 49745 (May 
20, 2004), 69 FR 29998 (May, 26, 2004) (SR-NYSE-2003-37).
    \13\ See Securities Exchange Act Release No. 58184 (July 17, 
2008), 73 FR 42853 (July 23, 2008) (SR-NYSE-2008-46). (One of the 
key changes was enhancing the Exchange's technology.)
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    The Exchange therefore proposes to amend NYSE Rule 124.40 to allow 
the odd-lot portion of PRLs to be executed in the Odd-lot System 
pursuant to the pricing provisions of NYSE Rule 124. The Exchange will 
continue to execute the odd-lot component of a PRL only if the entire 
round-lot portion(s) of the order as received by Exchange system is 
executed. The odd-lot portion of the PRL will retain the time stamp of 
its original entry as a PRL and would be sequenced for execution based 
on its initial entry time. Once all round lot components of the PRL are 
fully executed, the odd-lot portion of the order will be executed at a 
price consistent with other odd-lot orders subject to the provisions of 
NYSE Rule 124(c) and (d).
    Example
    A marketable order to sell 399 shares of security XYZ is received 
by Exchange systems at 12:00:00. The 99 share portion of the order is 
eligible for execution only after the 300 share portion of the PRL 
order is sold. See table below.\14\
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    \14\ This example assumes that the odd-lot portion of the PRL 
had priority of execution in the Odd-lot system because its original 
order entry time was 12:00:00.

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                                                   Number of       Price of
               Time of execution                    shares         execution            Customer receives
----------------------------------------------------------------------------------------------------------------
12:00:01......................................             100          $30.22  Report of Execution 100 shares
                                                                                 at a price of $30.22.
12:01:00......................................             100           30.21  Report of Execution 100 shares
                                                                                 at a price of $30.21.
12:01:47......................................             100           30.22  Report of Execution 100 shares
                                                                                 at a price of $30.22.
12:01:48......................................              99           30.23  Report of Execution 99 shares at
                                                                                 a price of $30.23.
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    The Exchange proposed amendment to NYSE Rule 124.40, will ensure 
that all odd-lots executed on the Exchange receive consistent pricing 
regardless of whether the order is received as an odd-lot order or a 
PRL.
    The Exchange will commence implementation of the proposed systemic 
change to execute the odd-lot portion of a PRL order pursuant to the 
same pricing methodology used for odd-lot orders on or about March 16, 
2009. The Exchange intends to progressively implement this systemic 
change for PRLs on a security by security basis as it gains experience 
with the new technology until it is operative in all securities traded 
on the Floor. During the implementation, the Exchange will identify on 
its Web site which securities

[[Page 13488]]

have been transitioned to the new system.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \15\ 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. The instant proposal is in keeping 
with these principles in that it seeks to price the execution of all 
odd-lot orders pursuant to one pricing methodology now that the 
Exchange systemic impediments to the implementation of one pricing 
methodology are removed.
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    \15\ 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The proposed rule change is filed pursuant to paragraph (A) of 
Section 19(b)(3) \16\ and Rule 19b-4(f)(5).\17\ This proposed rule 
change effects a change in an existing order entry or trading system of 
a self-regulatory organization that: (A) Does not significantly affect 
the protection of investors or the public interest; (B) does not impose 
any significant burden on competition; and (C) does not have the effect 
of limiting the access to or availability of the system. The proposed 
filing does not in any way limit access to the Exchange's odd-lot 
system; rather, the changes are the result of technological 
advancements which remove the systemic impediments that previously 
restricted the Exchange's ability to execute all odd-lots pursuant to a 
the same pricing methodology. In so far as, the proposal ensures that 
all odd-lot orders are priced in the same manner, it promotes the 
protection of investors and serves the public interest without imposing 
a significant burden on competition.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 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-comments@sec.gov. Please include 
File Number SR-NYSE-2009-27 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2009-27. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the 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-2009-27 and should be 
submitted on or before April 17, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Florence E. Harmon,
Deputy Secretary.
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    \18\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E9-6828 Filed 3-26-09; 8:45 am]