[Federal Register Volume 67, Number 189 (Monday, September 30, 2002)]
[Notices]
[Pages 61368-61370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24754]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46527; File No. SR-NYSE-2002-37]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Amending the Exchange's 
Automatic Execution Facility (NYSE Direct+)

September 20, 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 August 29, 2002, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') 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 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 Exchange Rules 
governing NYSE Direct+[reg] (``Direct+''). The rule amendments propose 
to: (i) Amend Rule 13 to provide for a one-year pilot program to expand 
Direct+ order size eligibility for Investment Company Units, including 
Exchange-Traded Funds (``ETFs''), and Trust Issued Receipts, such as 
Holding Company Depositary Receipts (``HOLDRs''); \3\ (ii) amend Rule 
1002 to include ETFs and HOLDRs and provide that ETFs trade until 4:15 
p.m.; and (iii) amend Rule 1005 to reflect that the rule applies to 
ETFs and HOLDRs. Below is the text of the proposed rule change. 
Proposed new text is italicized and proposed deleted text is 
[bracketed].
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    \3\ The proposal applies to the broader categories of Investment 
Company Units (as defined in paragraph 703.16 of the Listed Company 
Manual) and Trust Issued Receipts (as defined in Rule 1200), among 
which ETFs and HOLDRs are a part. Telephone conversation between 
Donald Siemer, Director, Market Surveillance, NYSE, Terri Evans, 
Assistant Director, Sonia Patton, Special Counsel, and Steve 
Williams, Economist, Division of Market Regulation, Commission, 
September 18, 2002.
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Rule 13: Definitions of Orders
* * * * *

Auto Ex Order

    An auto ex order is a limit order of 1099 shares or less priced at 
or above the Exchange's published offer (in the case of an order to 
buy) or at or below the Exchange's published bid (in the case of an 
order to sell), which a member or member organization has entered for 
automatic execution in accordance with, and to the extent provided by, 
Exchange Rules 1000-1005.
    Pursuant to a one-year pilot program, orders in Investment Company 
Units (as defined in paragraph 703.16 of the Listed Company Manual), or 
Trust Issued Receipts (as defined in Rule 1200) may be entered as limit 
orders in an amount greater than 1099 shares. The pilot program shall 
provide for a gradual, phased-in raising of order size eligibility, up 
to a maximum of 10,000 shares. Each raising of order size eligibility 
shall be preceded by a minimum of a one week advance notice to the 
Exchange's membership.
* * * * *
NYSE DIRECT+\TM\: RULES GOVERNING AUTOMATIC EXECUTION OF LIMIT ORDERS 
OF A SPECIFIED SIZE
    Rules 1000-1001: No change.

Rule 1002: Availability of Automatic Execution Feature

    Orders designated as ``auto ex'' in a particular stock, Investment 
Company Unit (as defined in paragraph 703.16 of the Listed Company 
Manual), or Trust Issued Receipt (as defined in Rule 1200) shall be 
eligible to receive an automatic execution if entered after the 
Exchange

[[Page 61369]]

has disseminated a published bid or [order] offer [in that stock], 
until 3:59 p.m. for stocks and Trust Issued Receipts, or 4:14 p.m. for 
Investment Company Units, or within one minute of any other closing 
time of the Exchange's floor market. Orders designated as ``auto ex'' 
in a particular stock, Trust Issued Receipt, or Investment Company Unit 
that are entered prior to the dissemination of a bid or offer [in that 
stock], [or] after 3:59 p.m. for stocks and Trust Issued Receipts, [or] 
after 4:14 p.m. for Investment Company Units, or within one minute of 
any other closing time, shall be displayed as limit orders in the 
auction market.
    Rules 1003--1004: No change.

Rule 1005: Orders May Not Be Broken Into Smaller Amounts

    An auto ex order for any account in which the same person is 
directly or indirectly interested may only be entered at intervals of 
no less than 30 seconds between entry of each such order in a stock, 
Investment Company Unit (as defined in paragraph 703.16 of the Listed 
Company Manual), or Trust Issued Receipt (as defined in Rule 1200).
* * * * *

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 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 and is set forth in Sections A, B, and C below.

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

1. Purpose
    NYSE Direct+ provides for the automatic execution of limit orders 
in a stock (``auto ex'' orders) against trading interest reflected in 
the Exchange's published quotation.\4\ An auto ex order priced at or 
above the Exchange's published offer price (in the case of an auto ex 
order to buy), or an auto ex order priced at or below the Exchange's 
published bid price (in the case of an auto ex order to sell) would 
receive an automatic execution without being exposed to the auction 
market, provided the bid or offer is still available.
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    \4\ NYSE Direct+ was originally filed as a one-year pilot. It 
was approved in Securities Exchange Act Release No. 43767 (December 
22, 2000), 66 FR 834 (January 4, 2001). The pilot was subsequently 
extended for an additional year by SR-NYSE-2001-50 and approved by 
Securities Exchange Act Release No. 45331 (January 24, 2002), 67 FR 
5024 (February 1, 2002).
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    Currently, order size eligibility for all auto ex orders for stocks 
is 1099 shares or less. The Exchange is proposing to expand the size of 
orders eligible for automatic execution under NYSE Direct+ to a maximum 
of 10,000 shares for two Exchange products. These are Investment 
Company Units (as defined in paragraph 703.16 of the Listed Company 
Manual), including ETFs,\5\ and Trust Issued Receipts (such as 
HOLDRs),\6\ which are defined in Rule 1200. The Exchange believes that 
the increase in the number of shares eligible for automatic execution 
for Investment Company Units and Trust Issued Receipts will serve to 
attract additional order flow to NYSE Direct+.\7\ The expanded order 
size would be phased in as a pilot program, with order size raised on a 
gradual, ``stair step'' basis to a maximum of 10,000 shares as 
experience is gained. The proposed pilot program time period is one 
year.
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    \5\ See Securities Exchange Act Release No. 44616 (July 30, 
2001), 66 FR 40761 (August 3, 2001) (NYSE rules and policies were 
amended to accommodate the trading of certain ETFs on an unlisted 
trading privileges (``UTP'') basis).
    \6\ See Securities Exchange Act Release No. 45718 (April 9, 
2002), 67 FR 18965 (April 17, 2002) (Adopted listing standards for 
the listing and trading, or the UTP trading, of Trust Issued 
Receipts under NYSE Rules 1200 through 1202, and 703.20 of the 
NYSE's Listed Company Manual); and SR-NYSE-2002-15, approved by 
Securities Exchange Act Release No. 45729 (April 10, 2002), 67 FR 
18970 (April 17, 2002) (Adopted standards for UTP trading of 
HOLDERs).
    \7\ See supra note 3.
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Rule 13

    The change to Rule 13 codifies the pilot program.

Rule 1002

    Rule 1002 currently provides that auto ex orders may be entered on 
any day in a particular stock from the time the Exchange has published 
a bid or offer in that stock until 3:59 p.m. If orders designated as 
auto ex are entered before a quote is published or after 3:59 p.m., the 
orders will be treated as limit orders in the auction market.
    Exchange Rule 1100 provides that any series of Investment Company 
Units so designated by the Exchange may be traded on the Exchange until 
4:15 p.m. each business day to match the trading hours of related 
futures contracts. The Exchange may close trading at an early time to 
coincide with the close of trading in a related futures contract, where 
applicable. Therefore, the Exchange is proposing to amend Rule 1002 to 
include orders in Investment Company Units and Trust Issued Receipts 
and to provide that orders in Investment Company Units trade until 4:15 
p.m.\8\
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    \8\ Id.
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Rule 1005

    Rule 1005 in part provides that auto ex orders for the same 
customer in the same stock may be entered at time intervals of no less 
than 30 seconds between entry of each such order. The proposed 
amendment reflects that the rule will also apply to Investment Company 
Units and Trust Issued Receipts.\9\
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    \9\ Id.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b)(5),\10\ which requires an Exchange to 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 Exchange also believes that the 
proposed rule change is designed to support the principles of section 
11A(a)(1) of the Act \11\ 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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    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78k-1(a)(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 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

[[Page 61370]]

(ii) as to which the NYSE 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 proposal 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 NYSE. All 
submissions should refer to File No. SR-NYSE-2002-37 and should be 
submitted by October 21, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated Authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-24754 Filed 9-27-02; 8:45 am]
BILLING CODE 8010-01-P