[Federal Register Volume 67, Number 9 (Monday, January 14, 2002)]
[Notices]
[Pages 1793-1794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-884]



[[Page 1793]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45251; File No. SR-NYSE-2001-49]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Amending NYSE Rule 902 To 
Permit the Submission of Member to Member Coupled Orders in Crossing 
Session I in Order To Close Out Error Positions

January 8, 2002.
    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 December 11, 2001, the New York Stock Exchange, Inc. (``Exchange'' 
or ``NYSE'') filed with the Securities and Exchange Commission 
(``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 NYSE proposes to amend NYSE Rule 902, Off-Hours Trading Orders, 
to permit the submission of member to member coupled orders in Crossing 
Session I in order to close out error positions. The text of the 
proposed rule change is below. Proposed new language is in italic.
    Rule 902.  Off-Hours Trading Orders
    (a) Entry of Orders
    (i) Closing-Price Orders
    Subject to Rule 906 (Impact of Trading Halts on Off-Hours Trading), 
a member or member organization may enter into the Off-Hours Trading 
Facility a closing-price order at such times as the Exchange may 
specify.
    (ii) Closing-Price Coupled Orders
    (A) Subject to Rule 906, a member or member organization may enter 
into the Off-Hours Trading Facility a closing-price order to buy 
coupled with a closing-price order to sell the same quantity of the 
same security for execution against each other. However, except for 
those orders defined in paragraphs (ii)(B) and (C) of this rule, a 
member or member organization may not so enter such coupled orders if 
both such orders are for an account in which any member or member 
organization, or any ``associated party'' (as paragraph (b)(ii) of Rule 
800 (Basket Trading: Applicability and Definitions) defines that term), 
has a direct or indirect interest.
    (B) A member or member organization may enter a closing-price order 
to buy (sell) a security for the account of the specialist registered 
in such security coupled with a closing price order to sell (buy) for 
the account of any member or member organization which has agreed to 
offset all or part of any market-on-close imbalance that existed in the 
stock prior to the official closing of the 9:30 a.m. to 4:00 p.m. 
trading session.
    (C) A member or member organization may enter a closing price order 
to buy (sell) a security for the account of the specialist registered 
in such security coupled with a closing price order to sell (buy) for 
the account of any member or member organization where such member or 
member organization is acting to offset a transaction made in error. 
Both parties to the closing price transaction must maintain a specific 
written record that the purpose of the coupled order was to close out 
an error.
    (iii) Aggregate-Price Coupled Orders
    A member or member organization may only enter into the Off Hours 
Trading Facility an aggregate-price order to buy (sell) that is coupled 
with an aggregate-price order to sell (buy) the same quantities of the 
same securities.
    (b)-(g) No change.

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 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.

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

1. Purpose
    In SR-NYSE-99-25,\3\ the Commission approved initiatives to 
strengthen the regulation of activities of members on the Exchange 
Floor (``Floor''). The initiatives consisted of amendments to NYSE Rule 
134, Differences and Omissions--Cleared Transactions (``QTs''), and a 
new rule, NYSE Rule 407A, Disclosure of All Members Accounts. The 
Exchange is now proposing an amendment to its after-hours crossing 
session procedures to facilitate the handling of error transactions on 
the Floor.
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    \3\ See Securities Exchange Act Release Nos. 44769 (September 6, 
2001), 66 FR 47710 (September 13, 2001); 44427 (June 14, 2001), 66 
FR 33282 (June 21, 2001); and 42381 (February 3, 2000), 65 FR 6673 
(February 10, 2000).
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    In 1991, the Exchange established its ``Off-Hours Trading 
Facility.'' \4\ One of its stated purposes was to recapture order flow 
in NYSE listed securities that was being executed offshore. The Off-
Hours Trading Facility permits members and member organizations to 
enter orders to be executed at the NYSE closing price, that is, the 
price established by the last regular way sale in a security at the 
official closing of the 9:30 a.m. to 4 p.m. trading session. ``Crossing 
Session I'' is the session from 4:15 p.m. to 5 p.m. during which orders 
may be entered for any Exchange listed issue, other than a security 
that is subject to a trading halt at the close of the regular trading 
session (including a trading halt under NYSE Rule 80B, Trading Halt Due 
to Extraordinary Market Volatility) or is halted after 4 p.m.\5\ During 
Crossing Session I, orders may be entered via SuperDOT and may be 
canceled up to 5 p.m. Eligible orders on the specialist's book will 
automatically participate in Crossing Session I.
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    \4\ See Securities Exchange Act Release No. 33992 (May 2, 1994), 
59 FR 23907 (May 9, 1994).
    \5\ The NYSE confirmed that the new exception to NYSE Rule 
902(a)(ii) (embodied in proposed NYSE Rule 902(a)(ii)(C)) is subject 
to NYSE Rule 906, Impact of Trading Halts on Off-Hours Trading,
and, therefore, the proposed exception does not permit trading of a 
security that is subject to a trading halt under NYSE Rule 906(a) or 
(b). Telephone discussion between Donald Siemer, Director Rule 
Development, Market Surveillance Division, NYSE, and Christopher B. 
Stone, Attorney Advisor, Division of Market Regulation, Commission 
(January 7, 2002).
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    NYSE Rule 902, Off-Hours Trading Orders, currently allows coupled 
orders to buy and sell the same amount of the same security to be 
entered into Crossing Session I. Moreover, NYSE Rule 902 provides that 
coupled orders cannot be entered into Crossing Session I if each side 
of the coupled order is for the account of a member or member 
organization. The only exception currently provided for in NYSE Rule 
902 is a situation in which a member or member organization and a 
specialist member organization enter a coupled order in a stock, which 
has the effect of offsetting all or a part of any market-on-close 
imbalance that existed in such stock prior to the official closing of 
the 9:30 a.m. to 4 p.m. trading session.
    The Exchange believes it is appropriate to add an additional

[[Page 1794]]

exception in NYSE Rule 902 to permit a coupled order to be submitted in 
Crossing Session I to address situations where a member or member 
organization wishes to close out an error at the closing price on the 
Exchange, and the specialist has agreed to take the other side of the 
trade. Both parties to the coupled order would be required to maintain 
a specific written record that the purpose of the coupled order was to 
close out an error.
    An error discovered at or around the close can be closed out 
promptly at the closing price, ensuring that the error is closed out in 
a timely manner. Such a procedure is also a benefit to members in that 
it ensures that the member does not have to bear any overnight market 
risk with respect to the error. Thus, the proposed procedure is timely, 
efficient, and reduces market risk to members.
    This proposed procedure is a limited exception available only to 
facilitate timely resolution of errors and is not intended for any 
other purpose. Therefore, it is not a means whereby professional 
traders in the normal course of trading may step ahead of retail or any 
other investors.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b)(5) of the Act,\6\ which requires, 
among other things, that the rules of an exchange be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, 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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    \6\ 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

    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 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, 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 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 
Exchange. All submissions should refer to File No. SR-NYSE-2001-49 and 
should be submitted by February 4, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-884 Filed 1-11-02; 8:45 am]
BILLING CODE 8010-01-M