[Federal Register Volume 67, Number 8 (Friday, January 11, 2002)]
[Notices]
[Pages 1527-1529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-807]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45246; File No. SR-NYSE-2001-52]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the New York Stock Exchange, 
Inc. To Amend Rule 123

January 7, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
December 21, 2001, the New York Stock Exchange, Inc. filed with the 
Securities and Exchange Commission the proposed rule change as 
described in Items I, II and III below, which Items have been prepared 
by the NYSE. 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 amendments to NYSE Rule 123. 
The proposed rule text follows: Additions are italicized, deletions are 
[bracketed].

Rule 123--Records of Orders

    Paragraphs headed ``Given Out'', ``Receipt of Orders'', ``Cancelled 
or Executed'', and ``By Accounts'', to be numbered (a), (b), (c) and 
(d), respectively.
(e) System Entry Required
    Except as provided in paragraphs .21 and .22 below, no Floor member 
may represent or execute an order on the Floor of the Exchange unless 
the details of the order have been first recorded in an electronic 
system on the Floor. Any member organization proprietary system used to 
record the details of the order must be capable of transmitting these 
details to a designated Exchange data base within such time frame as 
the Exchange may prescribe. The details of each order required to be 
recorded shall include the following data elements,

[[Page 1528]]

any changes in the terms of the order and cancellations, in such form 
as the Exchange may from time to time prescribe:
    1. Symbol;
    2. Clearing member organization;
    3. Order identifier that uniquely identifies the order;
    4. Identification of member or member organization recording order 
details;
    5. Number of shares or quantity of security;
    6. Side of market;
    7. Designation as market, limit, stop, stop limit;
    8. Any limit price and/or stop price;
    9. Time in force;
    10. Designation as held or not held;
    11. Any special conditions;
    12. System-generated time of recording order details, modification 
of terms of order or cancellation of order;
    13. Such other information as the Exchange may from time to time 
require.
* * * * *
    .20  Orders--For purposes of paragraph (e), an order shall be any 
written, oral or electronic instruction to effect a transaction.
    .21  Orders not subject to paragraph (e) recording requirements--
Any order executed by a specialist, Competitive Trader or Registered 
Competitive Market Maker for his or her own account and any orders 
which by their terms are incompatible for entry in an Exchange system 
relied on by a Floor member to record the details of the order in 
compliance with this Rule shall be exempt from the order entry 
requirements of paragraph (e) above.
    .22  With respect to a bona fide arbitrage order, a member may 
execute such order before entering the order into an electronic system 
as required by paragraph (e) above, but such member must enter such 
order into such electronic system no later than 60 seconds after the 
execution of such order. With respect to an order to offset a 
transaction made in error, a member may, upon discovering such error 
within the same trading session, effect an offsetting transaction 
without first entering such order into an electronic system, but such 
member must enter such order into such electronic system no later than 
60 seconds after the execution of such order.
    .23  With respect to any order in an Investment Company Unit 
(including a bona fide arbitrage order or an order to offset a 
transaction made in error), a member may execute such order before 
entering the order into an electronic system as required by paragraph 
(e) above, but such member must enter such order into such electronic 
system no later than 90 seconds after the execution of such order.
    .24[3]  Time standards--Any member organization proprietary system 
used to record the details of an order for purposes of this rule must 
be synchronized to a commonly used time standard and format acceptable 
to the Exchange.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statuary 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 
text of these statements may be examined at the places specified in 
Item IV below. The NYSE 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
    The proposed rule change is being filed as a one-year pilot.
    The Exchange has adopted requirements for the electronic capture of 
orders at the point of sale (front end systemic capture, or 
``FESC'')\3\ and at the point of receipt (order tracking system, or 
``OTS''). The purpose of the requirements is to create a complete 
systemic record of orders handled by members and member organizations. 
These requirements will provide benefits both to the Exchange and 
members in terms of recordkeeping, surveillance and order processing.
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    \3\ See Securities Exchange Act Release No. 43689 (December 7, 
2000), 65 FR 79145 (December 18, 2000).
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    The Exchange's FESC rule (Rule 123) requires that all orders in any 
security traded on the Exchange be entered into an electronic database 
before they can be represented in the Exchange's auction market. These 
are certain exceptions, such as orders to offset an error, or for bona 
fide arbitrage, that may be entered within the 60 seconds after a trade 
is executed.\4\
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    \4\ See SR-NYSE-2001-36 (a one-month pilot), Securities Exchange 
Act Release No. 44783 (September 10, 2001), 66 FR 48304 (September 
19, 2001), permanently approved (SR-NYSE-2001-39) by Securities 
Exchange Act Release No. 44943 (October 16, 2001), 66 FR 53820 
(October 24, 2001).
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    In December 2000, the Exchange began trading an Exchange-Traded 
Fund (``ETF'') on the S&P Global 100 (symbol IOO). In addition, in July 
2001, the Exchange began trading on an unlisted trading privileges 
basis (``UTP''), certain ETFs currently listed and trading on other 
markets. These ETF's include the NASDAQ 100 Trust (symbol QQQ), 
Standard and Poor's Depository Receipts (symbol SPY) and the Dow 
Industrials DIAMONDS (symbol DIA).
    ETF products have unique trading characteristics. They are 
derivatively priced, and trade very rapidly in response to changes in 
the underlying value of fund components, and changes in prices of 
options and futures contracts on the funds. The Exchange is not the 
primary market for the most active ETF's which its trades, and must 
compete for order flow with other markets that do not have a FESC 
requirement.
    Some market participants believe that the FESC requirement may be a 
disincentive to sending order flow to the Exchange as it may unduly 
slow down the trading process and interfere with trading strategies 
dependent upon speed of execution. Accordingly, the Exchange is 
proposing to amend its FESC rule to provide that orders in ETFs may be 
entered within 90 seconds of execution. The Exchange believes that this 
proposal will facilitate trading in ETFs on the Exchange, while still 
ensuring that the Exchange maintains its electronic order database with 
orders being entered in reasonable proximity to order executions. The 
Exchange notes that requirements that members record the time of 
receipt of an order on the Floor remain in full effect and not affected 
by this proposal.
2. Statutory Basis
    The Exchange believes that the basis under the Act for this 
proposed rule change is the requirement under Section 6(b)(5) 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 proposed rule change 
is designed to accomplish these ends by strengthening the Exchange's 
ability to surveil the Floor activities of members.

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.

[[Page 1529]]

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.

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

    Because the foregoing proposed rule: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not become 
operative for 30 days or such shorter time as the Commission may 
designate, the proposed rule change has become effective pursuant to 
Section 19(b)(3(A) of the Act\5\ and subparagraph (f)(6) of 
thereunder.\6\ 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.\7\
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6)(iii).
    \7\ The Commission notes, however, this proposed rule change has 
been filed as a one-year pilot. During the pilot, the NYSE will 
surveil the application of the exception to NYSE Rule 123(e) and 
submit date to the Commission for the purpose of evaluating the 
Rule's efficacy.
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    The Commission notes that under Rule 19-4(f)(6)(iii),\8\ the 
proposal does not become operative for 30 days after the date of its 
filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest. 
The Exchange has requested that the Commission waive the five-day pre-
filing requirement and designate that the proposed rule change become 
operative immediately to permit the implementation of this exception to 
NYSE Rule 123(e) without inconvenience or delay to the public, which 
the NYSE believe is consistent with investor protection and the public 
interest. In particular, the Exchange believes the proposed rule change 
will enable members to execute ETF-related orders quickly without 
having to immediately enter the order into an electronic system (FESC). 
The proposed rule change will still require that such orders be entered 
into an electronic system (FESC) within 90 seconds after the execution 
of the respective order.
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    \8\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that it is consistent with the protection 
of investors and the public interest to waive the five-day pre-filing 
required and designate the proposal immediately operative.\9\ 
Accelerating the operative date and waiving the pre-filing requirement 
will permit the Exchange to implement the exception to NYSE Rule 123(e) 
without undue delay. For this reason, the Commission finds good cause 
to designate that the proposal become operative immediately.
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    \9\ For purposes only of accelerating the operative date of this 
proposal, 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

    Interest persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal is 
consistent with the Act. Persons making written submissions should 
filed six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street NW, Washington, DC 20549-0609. Copies of 
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 File No. SR-NYSE-2001-52 and should be 
submitted by February 1, 2002.

    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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-807 Filed 1-10-02; 8:45 am]
BILLING CODE 8010-01-M