[Federal Register Volume 67, Number 237 (Tuesday, December 10, 2002)]
[Notices]
[Pages 75893-75895]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31162]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46943; File No. SR-NYSE-2002-58]


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+)

December 4, 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 November 1, 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] (``NYSE Direct +''). The rule amendments 
propose to amend NYSE Rule 1005 to permit entry of limit orders up to 
1,099 shares within 30 seconds for an account in which the same person 
has an interest, provided that the orders are entered from different 
terminals and that the member or member organization responsible for 
the entry of the orders to the trading floor (``Floor'') has procedures 
to monitor compliance with the separate terminal requirement. Below is 
the text of the proposed rule change. Proposed new text is italicized 
and proposed deleted text is [bracketed].
* * * * *
Rule 1005 An auto ex order for any account in which the same person is 
directly or indirectly interested may

[[Page 75894]]

only be entered at intervals of no less than 30 seconds between entry 
of each such order in a stock[.], unless the orders are entered by 
means of separate order entry terminals, and the member or member 
organization responsible for entry of the orders to the Floor has 
procedures in place to monitor compliance with the separate terminal 
requirement.
* * * * *

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
    The NYSE Direct+ pilot \3\ provides for the automatic execution of 
limit orders of 1099 shares or less (known as an ``NX order'' or auto 
ex order) against trading interest reflected in the Exchange's 
published quotation. It is not mandatory that all limit orders of 1099 
shares be entered as NX orders; rather, the member organization 
entering the order, or its customer if enabled by the member 
organization, can choose to enter an NX order when such member 
organization (or customer) believes that the speed and certainty of an 
execution at the Exchange's published bid or offer price is in its 
customer's best interest.
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    \3\ See Securities Exchange Act Release No. 43767 (December 22, 
2000), 66 FR 834 (January 4, 2001) (SR-NYSE-2000-18) (Approving the 
NYSE Direct + pilot). The one-year pilot was subsequently extended 
for another year in Securities Exchange Act Release No. 45331 
(January 24, 2002), 67 FR 5024 (February 1, 2002) (SR-NYSE-2001-50). 
In addition, we have recently requested another year extension, 
beginning December 24, 2002. See Securities Exchange Act Release No. 
46906 (November 25, 2002) (SR-NYSE-2002-47). This proposal, if 
approved, would be part of the pilot and only run while the pilot 
runs. Telephone conversation between Donald Siemer, Director, Market 
Surveillance, NYSE, and Sonia Patton, Special Counsel, Division of 
Market Regulation, Commission, December 3, 2002.
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    An order placed in NYSE Direct+ is executed when the limit price is 
equal to or better than the published bid or offer. If an order placed 
in NYSE Direct+ is not executed, it is placed on the specialist's book 
for representation in the market at its limit price.
    NYSE Rule 1005 provides that an NX 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. The restriction against the same customer entering an order 
within 30 seconds focuses on the identity of the ultimate beneficial 
owner of an account. Thus, an order cannot be entered for the same 
beneficial owner within 30 seconds. The purpose of this restriction is 
to limit the ability of a trader to circumvent the restriction on order 
size by breaking a large order into smaller components and repetitively 
entering them to exhaust liquidity at the published bid or offer price. 
The restriction in NYSE Rule 1005 applies across an entire firm, even 
if separate traders are making independent decisions with respect to an 
account in which the firm has an interest.
    The Exchange is proposing to amend NYSE Rule 1005 to permit entry 
of NX orders within 30 seconds for an account in which the same person 
has an interest, provided that the orders are entered from different 
terminals and that the member or member organization responsible for 
the entry of the orders to the Floor has procedures to monitor 
compliance with the separate terminal requirement. Such procedures, at 
a minimum, would require member organization compliance departments to 
review patterns of order entry from individual terminals on a periodic 
basis to ensure compliance with the 30 second requirement. The Exchange 
will include compliance with NYSE Rule 1005 in its examination scope 
when conducting its periodic examinations of member organizations. This 
amendment is not inconsistent with the original intent of Rule 1005 to 
preclude the intentional breaking up of large size orders to circumvent 
the 1099 NX order size limitation because orders are typically entered 
by traders who are independent decision makers and who operate from his 
or her own discrete order entry terminal. Thus, as a practical matter, 
the Exchange believes that the proposed amendment to NYSE Rule 1005 
cannot reasonably be expected to facilitate the ability of any 
individual trader to break up large orders at less than 30 second 
intervals to circumvent the 1099 share size limitation for NX orders.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b)(5),\4\ 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 \5\ 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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    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 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 (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

[[Page 75895]]

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-2002-58 and 
should be submitted by December 31, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated Authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-31162 Filed 12-9-02; 8:45 am]
BILLING CODE 8010-01-P