[Federal Register Volume 65, Number 251 (Friday, December 29, 2000)]
[Notices]
[Pages 83120-83122]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-33264]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43763; File No. SR-NYSE-99-24)]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval of 
Amendment Nos. 1 and 2 Thereto by the New York Stock Exchange, Inc. 
Establishing XPress Orders and Quotes

December 21, 2000.

I. Introduction

    On June 10, 1999, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\, a 
proposed rule change establishing XPress orders and quotes. The 
proposed rule change was published for comment in the Federal Register 
on August 11, 1993.\3\ The Exchange filed Amendment Nos. 1 \4\ and 2 
\5\ to the proposal on September 13, 1999 and August 21, 2000, 
respectively. The Commission received no comments on the proposal. This 
order approves the proposed rule change, as amended, and solicits 
comments from interested persons on Amendment Nos. 1 and 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 41703 (August 4, 1999), 
64 FR 43802.
    \4\ See letter from Daniel Parker Odell, Assistant Secretary, 
NYSE, to Richard Strasser, Assistant Director, Division of Market 
Regulation (``Division''), Commission (September 10, 1999) 
(``Amendment No. 1''), Amendment No. 1 specifies that XPress orders 
and XPress quotes must consist of at least 25,000 shares and XPress 
quotes must be displayed for at least 30 seconds.
    \5\ See letter from Daniel Parker Odell, Assistant Secretary, 
NYSE, to Nancy Sanow, Assistant Director, Division, Commission 
(August 17, 2000) (``Amendment No. 2''). Amendment No. 2 changes the 
original proposal to allow partial executions when an XPress order 
is entered against a valid XPress quote that is reduced below the 
minimum size requirement before the XPress order is received at the 
specialist's post. Amendment No. 2 provides examples of situations 
where XPress orders would receive partial executions. Amendment No. 
2 also provides that is a SuperDOT order is received after an XPress 
order, but just before a second XPress order, the SuperDOT order 
will be executed, to the extent possible, with the XPress orders, in 
time priority. Finally, Amendment No. 2 amends proposed Rule 13 to 
require XPress orders to be entered before 3:58 p.m. or two minutes 
prior to any other closing time on the Exchange and clarifies that 
price improvement does not remove bids and offers from the floor.
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II. Description of the Proposal

    In order to enhance participation in its auction market, the 
Exchange proposes to create a new type of order,

[[Page 83121]]

known as an ``XPress order.'' The Exchange believes this order type 
responds to the needs of market participants for ``clean'' executions 
when entering large-size orders in response to bids and offers which 
have been displayed for a minimum time period.
    The proposed rule change consists of amendments to NYSE Rule 13, 
defining XPress orders and XPress quotes, and amendments to NYSE Rule 
72, describing the requirements for executing XPress orders. NYSE Rule 
13 defines an XPress order as an order of at least 25,000 shares to be 
executed against a displayed XPress quote, or at an improved price, if 
obtainable.\6\ Under NYSE Rule 13, the size of the XPress order could 
not exceed the size of the XPress bid or offer against which it was to 
be executed at the time of order entry. Any portion of the XPress order 
that is not executed against a displayed XPress quote is cancelled.\7\ 
XPress orders would be delivered to the specialist's post via the 
Exchange's automated order routing system. Multiple XPress orders in 
the same stock would be executed in strict time priority with respect 
to each other and with respect to other orders.
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    \6\ A customer's individual orders may not be aggregated to 
become an XPress order. For example, a customer's three separate 
10,000 share orders could not be aggregated to be designated as 
XPress. Telephone call between Donald Siemer, Director, Market 
Surveillance, NYSE, and Sonia Patton, Staff Attorney, Division, 
Commission (November 13, 2000).
    \7\ If no portion of the XPress order is executed because the 
entire XPress quote has been executed against by the time the XPress 
order is received at the specialist's post, the entire XPress order 
will be canceled. Telephone call between Donald Siemer, Director, 
Market Surveillance, NYSE, and Sonia Patton, Staff Attorney, 
Division, Commission (November 13, 2000).
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    An XPress quote is defined as a published bid or offer of at least 
25,000 shares that is displayed at the same price for at least 30 
seconds.\8\ If the XPress bid or offer price changed, the quote would 
have to be displayed at the new price for at least 30 seconds before it 
would be XPress eligible. Generally, if the size of the quote drops 
below 25,000 shares, the quote would no longer be XPress eligible.
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    \8\ See Amendment No. 1, supra n.4. The Exchange has indicated 
that it may, in the future, submit a proposed rule change to reduce 
the minimum size for XPress orders and quotes to 15,000 shares and 
to reduce the 30-second minimum requirement for XPress quote 
designation.
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    However, if an XPress order is entered against a valid XPress 
quote, but the quote has been reduced below 25,000 shares and is no 
longer XPress eligible when the order is received at the specialist's 
post, the Exchange proposes that the XPress order receive a partial 
execution.\9\ Any portion of the XPress order not executed, at either 
the XPress price or an improved price, would be cancelled. The Exchange 
provided the following examples of situations where an XPress order may 
be entered against a valid XPress quote that is reduced below 25,000 
shares when the order is received at the specialist's post.\10\
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    \9\ See Amendment No. 2, supra n.5. Under the original version 
of the proposal, if an XPress order was received at the specialist's 
post and the quote was no longer XPress, the XPress order would be 
cancelled.
    \10\ See Amendment No. 2, supra n.5.
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    First, assume there is an XPress offer for 25,000 shares at a price 
of $20. An XPress order to buy 25,000 shares is submitted, but a member 
in the crowd takes 5,000 shares of the offer before the specialist can 
interact with the XPress order. The Exchange proposes that the XPress 
order be permitted to buy the remaining 20,000 shares offered, with 
5,000 shares of the XPress order cancelled.
    Second, assume there is an XPress offer for 75,000 shares at $20, 
and three XPress orders of 25,000, 25,000 and 35,000 shares are 
received within a nearly simultaneous time frame.\11\ It is proposed 
that the first two XPress orders be executed for 25,000 shares each, 
and that the third XPress order receive a partial execution of 25,000 
shares, with 10,000 shares cancelled.
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    \11\ ``Within a nearly simultaneous time frame'' means within 
seconds. Telephone call between Donald Siemer, Director, Market 
Surveillance, NYSE, and Sonia Patton, Staff Attorney, Division, 
Commission (November 21, 2000).
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    Under Supplementary Material .50 to Rule 72, once the specialist 
has represented an XPress order in the crowd, no part of the XPress bid 
or offer against which the XPress order is to be executed can be 
withdrawn, except to provide price improvement to all or part of the 
XPress order.\12\ A member providing price improvement to an XPress 
order would have to trade with all other market interest having 
priority at the price before trading with the XPress order. The 
remainder of the XPress order, if any, would be executed at the XPress 
bid or offer price up to the number of shares then available, 
regardless of whether the number is less than the minimum size for an 
XPress quote. All or part of the balance of an XPress bid or offer 
could be withdrawn after an XPress order has been executed and before 
any subsequent XPress orders are represented.
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    \12\ XPress orders that receive partial execution are also 
eligible to receive price improvement. Telephone call between Donald 
Siemer, Director, Market Surveillance, NYSE, and Sonia Patton, Staff 
Attorney, Division, Commission (November 21, 2000).
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    Under the proposal, an execution of an XPress order, in whole or in 
part, would not remove bids or offers from the floor. Therefore, an 
XPress order executed in part, at an improved price, would retain its 
priority \13\ (i.e. be first in line for execution) and would not have 
to compete (i.e., be on parity) with newly entered bids or offers at 
the XPress quote. Without this proposed provision, NYSE Rule 72(f), 
which provides that a trade clears the floor, would apply. The Exchange 
believes that this result would defeat the purpose of the XPress order.
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    \13\ NYSE Rules 71 and 72 provide that the first bid made at the 
highest price has priority. Similarly, the first offer at the lowest 
price has priority.
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    In addition, an intervening SuperDOT order (i.e. a SuperDOT order 
received immediately between two XPress orders) would not remove bids 
or offers from the floor.\14\ For example, assume there is an XPress 
offer of 75,000 shares at $20. An XPress order to buy is received for 
40,000 shares followed closely by a SuperDOT limit order to buy 1,000 
shares at $20, and another XPress order to buy for 40,000 shares. In 
this example, the Exchange proposes that 75,000 shares trade at $20, 
with 40,000 shares allocated to the first XPress order, 1,000 shares to 
the SuperDOT limit order, and 34,000 shares to the second XPress order, 
with 6,000 shares of this order cancelled. Otherwise, the intervening 
SuperDOT order would clear the floor and the second XPress order would 
not be assured an execution.\15\
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    \14\ See Amendment No. 2, supra n.5.
    \15\ Telephone call between Donald Siemer, Director, Market 
Surveillance, NYSE, and Jack Drogin, Assistant Director, Division, 
Commission, Terri Evans, Special Counsel, Division, Commission, and 
Sonia Patton, Staff Attorney, Division, Commission (October 10, 
2000).
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    The effective date of the proposed rule change will be based on the 
implementation of enhancements to NYSE systems as well as the state of 
readiness of the member firm community. Presently, implementation of 
the proposal is targeted for the first quarter of the year 2001.\16\
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    \16\ Telephone call between Donald Siemer, Director, Market 
Surveillance, NYSE, and Sonia Patton, Staff Attorney, Division, 
Commission (November 21, 2000).
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the Act and the rules and regulations under the Act applicable to 
a national securities exchange.\17\ In particular, the proposal is 
consistent with Section

[[Page 83122]]

6(b)(5) of the Act \18\ in that it is designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and to remove impediments to and perfect the 
mechanism of a free and open market, and, in general, to protect 
investors and the public interest. In addition, the Commission believes 
that the XPress system is consistent with Congress's finding in Section 
11A(a)(1)(C)(i) of the Act \19\ that it is in the public interest and 
appropriate for the protection of investors and the maintenance of fair 
and orderly markets to assure the economically efficient execution of 
securities transactions.
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    \17\ In approving this proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ 15 U.S.C. 78k-1(a)(1)(C)(i).
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    The Commission believes that the XPress system should assure the 
economically efficient execution of securities transactions by 
providing a means for the execution of large orders from off the floor, 
In addition, the Commission believes that the XPress system should 
encourage market participants, particularly institutional investors, to 
display orders of at least 25,000 shares, which may attract more order 
flow and increase the depth and liquidity of the Exchange's market to 
the benefit of investors and the public interest. The Commission notes 
that the 30 second display requirement provides brokers and non-XPress 
orders the opportunity to interact with the quote before it becomes 
XPress eligible. The Commission also believes that the proposed rule 
change could help to perfect the mechanism of a free and open market by 
allowing market participants, particularly institutional investors, to 
more quickly execute large orders from off the floor. The Commission 
also believes that permitting the prompt and efficient execution of 
large orders, with the opportunity for price improvement, could 
strengthen the NYSE market and benefit market participants.
    The Commission finds good cause to approve Amendment Nos. 1 and 2 
to the proposed rule change prior to the thirtieth day after the date 
of publication of notice of filing of the amendment in the Federal 
Register. Specifically, Amendment No. 1 amends the proposed rule 
language to clarify that the minimum number of shares required for an 
order to be designated as XPress is 25,000 and that a published bid or 
offer must remain at the same price for at least 30 seconds to be 
designated an XPress quote. Amendment No. 2 clarifies that partial 
executions are permitted by the system, that intervening SuperDOT 
orders will not clear the floor, and that XPress orders cannot be 
entered within two minutes of the close of trading. The Commission 
believes that these amendments should assist members, investors, and 
market participants in general in understanding the requirements of 
XPresss quotes and XPress orders and how orders are executed on the 
system. Accordingly, the Commission believes that there is good cause, 
consistent with Sections 6(b)(5) and 19(b) of the Act,\20\ to approve 
Amendment Nos. 1 and 2 to the proposal on an accelerated basis.
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    \20\ 15 U.S.C. 78f(b)(5) and 78s(b).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment Nos. 1 and 2, including whether these 
amendments are 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 
DC 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 at 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-99-24 and should be submitted by [insert date 21 days from 
the date of publication].

V. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NYSE-99-24), as amended, is 
approved.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-33264 Filed 12-28-00; 8:45 am]
BILLING CODE 8010-01-M