[Federal Register Volume 68, Number 49 (Thursday, March 13, 2003)]
[Notices]
[Pages 12122-12123]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6070]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47463; File No. SR-NYSE-2002-44]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc. 
Relating to Amendments to the Exchange's Automatic Execution Facility 
(NYSE Direct+)

March 7, 2003.
    On September 9, 2002, the New York Stock Exchange (``NYSE'' or 
``Exchange'') 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 amend NYSE Direct+ Rule 1000. The Exchange 
submitted an amendment to the proposed rule change on January 27, 
2003.\3\ On February 5, 2003, the rule proposal was published for 
comment in the Federal Register.\4\ The Commission received no comments 
on the proposed rule change. This order approves the proposed rule 
change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy J. Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated January 23, 2003 (``Amendment No. 
1'').
    \4\ See Securities Exchange Act Release No. 47285 (January 29, 
2003), 68 FR 5948.
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I. Description of the Proposed Rule Change

    The Exchange is proposing to amend its Direct+ pilot by amending 
NYSE Rule 1000. The NYSE Direct+ pilot expires on December 23, 2003.\5\ 
This proposal would also expire with the pilot.\6\ The NYSE proposes to 
amend NYSE Rule 1000(ii) to provide that Direct+ executions will not be 
available if the resulting trade would be more than five cents from the 
last sale. This would apply to any trade whether an auto-ex trade or a 
trade in the regular auction market. Any auto-ex order sent that would 
result in an execution more than five cents away from the last trade 
would be routed to the specialist as a SuperDOT limit order. The 
specialist would then represent that order as he or she would represent 
any other limit order received via the SuperDOT system.
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    \5\ See Securities Exchange Act Release No. 46906 (November 25, 
2002), 67 FR 72260 (December 4, 2002).
    \6\ Telephone call between Don Siemer, Director, Market 
Surveillance, NYSE, and Terri Evans, Assistant Director, Division of 
Market Regulation, Commission (March 5, 2003).
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    Under the current provisions of NYSE Rule 1000, if the published 
quotation in a stock is gapped for a brief period of time, usually with 
one side or both of the quotation being set at 100 shares because of an 
influx of orders on one side of the market, or if the bid and/or offer 
size of the prevailing quotation is set at 100 shares, the Direct+ 
facility is not available. Under very active market conditions, the 
specialist may quote 100 shares bid or offered in order to allow trades 
in the auction market to be consummated without the last sale price 
being changed due to Direct+ executions. The Exchange has stated that 
this could result in the Exchange's disseminated quotation temporarily 
not reflecting the actual depth of the market for a stock as reflected 
by the dynamics of trading interest in the crowd. If the Direct+ 
facility is not available in instances where the actual spread in a 
stock's quotation is greater than five cents, the specialist will be 
able to show the actual depth in the market. According to the Exchange, 
if the actual spread resulting from bids and offers on the specialist's 
book, or resulting from trading crowd interest results in a spread of 
less than five cents from the price of the last trade, the specialist 
must display these, and Direct+ orders will remain eligible for 
automatic execution.
    The Exchange also proposes to amend Rule 1000(v) to provide that 
the specialist during the process for completing a Rule 127 transaction 
should publish a bid and/or offer that is more than five cents away 
from the last reported transaction price (instead of a 100-share bid 
and/or offer) in the subject security on the Exchange. Any limit order 
that is received as the Rule 127 trade is being effected that would 
better the market represented by the broker's bid or offer on behalf of 
the NYSE Rule 127 cross trade would be included in the Rule 127 trade.

II. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\7\ 
Specifically, the Commission believes the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\8\ which requires among 
other things, that the rules of the Exchange are

[[Page 12123]]

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 and perfect the 
mechanism of a free and open market and national market system, and, in 
general, to protect investors and the public interest.
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    \7\ The Commission has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule change should allow 
specialists to disseminate the actual depth of the NYSE auction market, 
while still ensuring that Direct+ is available when there is sufficient 
liquidity at prices closely related to the last sale.\9\ The Commission 
also believes that the proposed rule change should continue to 
accommodate the crossing of block transactions outside the prevailing 
quote, at the same time ensuring that limit orders that are received 
while the block trade is being effected that improve the market 
represented by the broker-dealer's bid or offer on behalf of the Rule 
127 trade will be executed as part of the block transaction.
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    \9\ According to the Exchange, a high percentage of executions 
in Direct+ occur within five cents of the last sale. See Amendment 
No. 1, supra note 3.
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III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-NYSE-2002-44) is approved as 
part of the NYSE Direct+ pilot that expires on December 23, 2003.
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    \10\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-6070 Filed 3-12-03; 8:45 am]
BILLING CODE 8010-01-P