[Federal Register Volume 67, Number 249 (Friday, December 27, 2002)]
[Notices]
[Pages 79217-79218]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32797]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47024; File No. SR-NYSE-2002-37]


Self-Regulatory Organizations; New York Stock Exchange; Order 
Approving Proposed Rule Change and Notice of Filing and Order Granting 
Accelerated Approval to Amendment No. 1 Thereto by New York Stock 
Exchange To Amend the Exchange's Automatic Execution Facility (NYSE 
Direct+)

December 18, 2002.

I. Introduction

    On August 29, 2002, the New York Stock Exchange (``NYSE'') 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 to: (i) Amend NYSE 
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''); (ii) amend NYSE rule 1002 to 
include Investment Company Units and Trust Issued Receipts and to 
provide that Investment Company Units trade until 4:15p.m.; and (iii) 
amend NYSE rule 1005 to reflect that the rule applies to Investment 
Company Units and Trust Issued Receipts. On September 20, 2002, the 
rule proposal was published for comment in the Federal Register.\3\ On 
December 16, 2002, the NYSE filed Amendment No. 1 to the proposed rule 
change.\4\ No comments were received on the proposed rule change. This 
order approves the proposed rule change and issues notice of, and 
grants accelerated approval to, Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 45816 (April 24, 
2002), 67 FR 30406.
    \4\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated December 12, 2002 (``Amendment No. 1''). In 
Amendment No. 1, the Exchange: (1) provided detailed information 
about the standards that would be employed to determine whether to 
increase Direct+ order size and (2) amended rule 13 to specify that 
the pilot program for increased order size eligibility for Direct+ 
orders in Investment Company Units and Trust Issued Receipts will 
run until December 23, 2003.
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II. Description of the Proposed Rule Change

    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.\5\ 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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    \5\ 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). The pilot was recently extended until 
December 23, 2003. See Securities Exchange Act Release No. 34-46906 
(November 25, 2002), 67 FR 72260 (December 4, 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, and Trust Issued Receipts (such as HOLDRs), 
which are defined in NYSE 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+. 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 would 
expire on December 23, 2003.\6\
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    \6\ See Amendment No. 1, supra note 4.
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    The NYSE believes that that the appropriate level to start 
accepting Direct + orders under this proposed rule change will be 
between 2,500 and 5,000 shares. Subsequent increases in the order 
eligibility levels will be made after experience is gained with trading 
at the initial level and at each subsequent level.\7\
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    \7\ The NYSE will consider the ability of the specialist to 
maintain a fair and orderly market in Investment Company Units or 
Trust Issued Receipts with the increased Direct+ order size and the 
operational impact, if any resulting from the increased order size 
eligibility. The NYSE has also provided that an increase in order 
size eligibility will be preceded by at least a one-week notice to 
the membership before implementation. See Amendment No. 1, supra 
note 4.
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    To implement the proposed pilot program, the Exchange is modifying 
NYSE rule 13 to codify the pilot program; amending NYSE rule 1002 to 
permit orders in Investment Company Units and Trust Issued Receipts to 
be executed via NYSE Direct + and to provide that orders in Investment 
Company Units trade until 4:15 p.m.; and modifying NYSE rule 1005 to 
apply the requirement in the rule of auto ex order entry for the same 
customer in the same stock at time intervals of no less than 30 seconds 
between entry of each order, to Investment Company Units and Trust 
Issued Receipts.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether Amendment No. 1 
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 also will be available for 
inspection and copying at the principal office of the NYSE. All 
submissions should refer to File No. SR-

[[Page 79218]]

NYSE-2002-37 and should be submitted by January 17, 2003.

IV. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\8\ Specifically, the Commission believes the 
proposed rule change is consistent with section 6(b)(5) of the Act,\9\ 
which requires among other things, that the rules of the Exchange are 
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 regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to perfect the 
mechanism of a free and open market and national market system, and in 
general to protect investors and the public interest. The Commission 
believes that including Investment Company Units and Trust Issued 
Receipts in the Direct + pilot is a reasonable expansion of the Direct 
+ pilot. The Commission believes that this allows customers who value 
speed and certainty of automatic executions to participate in Direct +. 
The Commission also believes that the expansion of the maximum order 
size for these products is reasonably designed to permit the exchange 
to attract additional order flow and potentially increase the depth and 
liquidity of the exchange's market to the benefit of investors.
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    \8\ The Commission has considered the proposed rules' impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for accelerating approval of 
Amendment No. 1 because it merely clarifies the standard the NYSE would 
use in determining whether to increase the Direct + order size, 
coordinates the pilot termination date with the date of the NYSE Direct 
+ pilot, and makes no substantive changes to the proposal. Accordingly, 
pursuant to section 19(b)(2) of the Act,\10\ the Commission finds good 
cause to approve Amendment No. 1 prior to the thirtieth day after 
notice of the Amendment is published in the Federal Register.
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    \10\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NYSE-2002-37) is approved, 
and Amendment No. 1 is approved on an accelerated basis.
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    \11\ Id.

    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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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 02-32797 Filed 12-26-02; 8:45 am]
BILLING CODE 8010-01-P