[Federal Register Volume 65, Number 154 (Wednesday, August 9, 2000)]
[Notices]
[Pages 48776-48778]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-20098]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43110; File No. SR-NYSE-00-19]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to Rule 1006 of 
NYSe Direct+\TM\, the Exchange's Automatic Execution Facility for 
Certain Limit Orders

    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 May 1, 2000, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change consists of proposed new Exchange Rule 
1006, which will provide automatic execution of coupled orders of 1099 
shares or less at a price that is at or within the Exchange's published 
quotation through the NYSe Direct+\TM\ facility. It also provides for 
an amendment to the list of rules subject to summary fine procedures 
under Exchange Rule 476A. The text of the proposed rule change is set 
forth below. All language is being added.
Rule 1006: Automatic Execution of Coupled Orders
    (a) A member or member organization may enter for automatic 
execution against each other a limit order to buy of 1099 shares or 
less coupled with a limit order to sell the same number of shares, as 
follows:
    (i) if both orders are for the accounts of non-members that are not 
broker-dealers, the orders may be priced and executed: (1) at the 
NYSE's published bid price or within the NYSE's published bid-offer 
spread, if the first order received by the member or member 
organization was an order to buy; or (2) at the NYS's published offer 
price, or within the NYSE's published bid-offer spread, if the first 
order received by the member or member organization is an order to 
sell;
    (ii) if one of the orders is for the account of a broker-dealer, 
and (1) the non-member non-broker-dealer is entering a sell order, the 
coupled orders may be priced either at the NYSE's published offer price 
or a price within the bid offer spread, or (2) if the non-member non-
broker-dealer is entering a buy order, the coupled orders may be priced 
either at the NYSE's published bid price, or within the bid-offer 
spread.
    (b) Coupled orders as described in paragraph (a) may be entered for 
any amount up to 1099 shares, regardless of the size of the then-
prevailing NYSE published bid or offer. Coupled orders shall have 
priority over all other orders at that price, regardless of time of 
entry, and shall be immediately executed and reported. Coupled orders 
may not be entered if both sides are for the account of a broker-
dealer.
* * * * *
List of Exchange Rule Violations and Fines Applicable Thereto Pursuant 
to Rule 476A
* * * * *
    Failure to adhere to procedures for internalization (automatic 
execution of coupled orders) under the NYSe Direct+\TM\ facility (Rule 
1006)

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.

[[Page 48777]]

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

1. Purpose
    In SR-NYSE-00-18, the Exchange filed a proposed rule change to 
provide for the automatic execution of limit orders of 1099 shares or 
less (``auto ex'' orders) against trading interest reflected in the 
Exchange's published quotation in a new trading facility, NYSe 
Direct+\TM\.\3\ The purpose of the proposed rule change filed herein is 
to provide for the automatic execution of coupled orders (a buy and 
sell order paired-off against each other) of 1099 shares or less at a 
price that is at or within the Exchange's published quotation through 
NYSe Direct+\TM\. Such orders may be priced and executed only at the 
minimum trading variation permitted on the Exchange.
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    \3\ Securities Exchange Act Release No. 42913 (June 8, 2000); 65 
FR 37587 (June 15, 2000).
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    Rule 1006 provides for the automatic execution of coupled orders of 
1099 shares or less, as follows:
    (i) if both orders are for the accounts of non-members that are not 
broker-dealers, the orders may be priced and executed (1) at the NYSE's 
published bid price or between the NYSE's published bid-offer spread, 
if the first order received by the member or member organization was an 
order to buy; or (2) at the NYSE's published offer price, or between 
the NYSE's published bid-offer spread, if the first order received by 
the member or member organization is an order to sell;
    (ii) if one of the orders is for the account of a member, member 
organization or broker-dealer, and (1) the non-member non-broker-dealer 
is entering a sell order, the coupled orders may be priced at the 
NYSE's published offer price, or a price between the bid-offer spread, 
or (2) if the non-member non-broker-dealer is entering a buy order, the 
coupled orders may be priced at the NYSE's published bid price, or 
between the bid-offer spread.
    Rule 1006 provides that coupled orders as described above have 
priority over all other trading interest at the execution price, 
regardless of time of entry. Coupled orders may not be entered if each 
order is for the account of a member, member organization, or broker-
dealer.
    Rule 1006 would permit in-house agency crosses, with the better 
price being received by whichever order was received first by the 
member or member organization in any case where the execution price is 
at the bid or offer. Rule 1006 also permits members and member 
organizations to trade as dealer or principal with agency orders, 
provided that the agency orders receive a price that is better than the 
published bid (in the case of an order to sell) or the published offer 
(in the case of an order to buy). As noted in SR-NYSE-99-48,\4\ the 
Exchange believes that internalization, if permitted by the Commission, 
should be tied to a public order price improvement requirement.
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    \4\ Securities Exchange Act Release No. 42450 (February 23, 
2000), 65 FR 10577 (February 28, 2000); Securities Exchange Act 
Release No. 42758 (May 5, 2000), 65 FR 30175 (May 10, 2000).
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    Addition to Rule 476A Summary Fine List. The Exchange is also 
seeking approval to add to the List of Rules subject to imposition of 
fines under Rule 476A the failure by members or member organizations to 
comply with Rule 1006, which provides for internalization (the 
automatic execution of coupled orders of 1099 shares or less). Rule 
476A provides that the Exchange may impose a fine, not to exceed 
$5,000, on any member, member organization, allied member, approved 
person, or registered or non-registered employee of a member or member 
organization for a minor violation of certain specified Exchange rules.
    The purpose for the proposed rule change to Rule 476A is to 
facilitate the Exchange's ability to induce compliance with all aspects 
of the above-cited rule. The Exchange believes failure to comply with 
the requirements of the rule and procedures should be addressed with an 
appropriate sanction and seeks Commission approval to add violations of 
these requirements to the Rule 476A List so as to have a broad range of 
regulatory responses available. The Exchange believes that this would 
more effectively encourage compliance by enabling a prompt, meaningful 
and heightened regulatory response (e.g., the issuance of a fine rather 
than a cautionary letter) to a minor violation of a rule.
    The Exchange wishes to emphasize the importance it places upon 
compliance with the above-named rule. While the Exchange, upon 
investigation, may determine that a violation of this rule is a minor 
violation of the type which is properly addressed by the procedures 
adopted under Rule 476A, in those instances where investigation reveals 
a more serious violation of the rule, the Exchange will provide an 
appropriate regulatory response. This includes the full disciplinary 
procedures available under Rule 476.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act \5\ 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 proposed rule change also is designed to support the principles of 
Section 11A(a)(1) of the Act \6\ 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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    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 15 U.S.C. 78k-1(a)(1).

    With respect to the addition to the summary fine list under NYSE 
Rule 476A, the proposed rule change will also advance the objectives of 
Section 6(b)(6) of the Act \7\ by providing a procedure whereby member 
organizations can be ``appropriately disciplined'' in those instances 
when a rule violation is minor in nature, but a sanction more serious 
than a warning or cautionary letter is appropriate. In addition, the 
proposed rule change provides a fair procedure for imposing such 
sanctions, in accordance with the requirements of Sections 6(b)(7) \8\ 
and 6(d)(1) \9\ of the Act.
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    \7\ 15 U.S.C. 78f(b)(6).
    \8\ 15 U.S.C. 78f(b)(7).
    \9\ 15 U.S.C. 78f(d)(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 not solicited or 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

[[Page 48778]]

publishes its reasons for so finding or (ii) as to which the Exchange 
consents, the Commission will:
    A. By order approve the 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street NW, Washington, D.C. 20549-0609. 
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 submissions should refer to the File No. SR-NYSE-00-19 and 
should be submitted by [insert date 21 days from date of publication].
    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).

Jonathan G. Katz,
Secretary.
[FR Doc. 00-20098 Filed 8-8-00; 8:45 am]
BILLING CODE 8010-01-M