[Federal Register Volume 68, Number 90 (Friday, May 9, 2003)]
[Notices]
[Pages 25071-25073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11588]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47793; File No. SR-NYSE-2003-10]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change and Amendment 
No. 1 thereto by the New York Stock Exchange, Inc. To Disengage NYSE 
Direct+ in Five Actively-Traded Stocks on a One-Week Pilot Basis

May 2, 2003.
    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 April 9, 2003, the New York Stock Exchange, Inc. (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. On April 28, 
2003, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons and to 
grant accelerated approval of the proposed rule change.
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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 
(``Division''), Commission, dated April 24, 2003 (``Amendment No. 
1''). Among other things, Amendment No. 1: (1) Clarifies that the 
NYSE is disengaging NYSE Direct+ in five stocks to assess the impact 
of its automated dissemination of quotes feature on Exchange floor 
transactions without Direct+ changing the depth of the market; (2) 
clarifies that during this pilot, the Exchange intends to monitor 
variables such as liquidity, continuity, spread, depth, and number 
of trades; and (3) provides proposed rule text regarding the pilot 
and the five stocks that will not be participating in NYSE Direct+. 
On April 30, 2003, the NYSE submitted a new exhibit A to Amendment 
No. 1. The new exhibit, which supercedes only Exhibit A to Amendment 
No. 1, makes corrections to the proposed rule text by inserting 
previously approved rule language under NYSE Rule 1000 that the NYSE 
inadvertently excluded from the original filing. See letter from 
Donald Siemer, Director, Rule Development, NYSE, to Lisa N. Jones, 
Attorney, Division, Commission, dated April 30, 2003.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to disengage NYSE Direct+[reg]\4\ in five

[[Page 25072]]

actively-traded stocks on a one-week pilot basis to assess the impact 
of autoquoting of bids and offers in connection with the Exchange's 
initiative to disseminate ``liquidity quotes.'' Below is the text of 
the proposed rule change. Proposed new language is italicized.
* * * * *

Rule 1000

Automatic Execution of Limit Orders Against Orders Reflected in NYSE 
Published Quotation

    Only straight limit orders without tick restrictions are eligible 
for entry as auto ex orders. Auto ex orders to buy shall be priced at 
or above the price of the published NYSE offer. Auto ex orders to sell 
shall be priced at or below the price of the NYSE bid. An auto ex order 
shall receive an immediate, automatic execution against orders 
reflected in the Exchange's published quotation and shall be 
immediately reported as NYSE transactions, unless:
    (i)-(vi) No change.
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    \4\ NYSE Rules 1000-1005 provide for the automatic execution of 
limit orders of 1,099 shares or less against the Exchange's 
disseminated bid or offer. NYSE Direct+ was originally filed as a 
one-year pilot. See Securities Exchange Act Release No. 43767 
(December 22, 2000), 66 FR 834 (January 4, 2001) SR-NYSE-00-18). The 
Direct+ pilot was subsequently extended for an additional year by 
Securities Exchange Act Release No. 45331 (January 24, 2002), 67 FR 
5024 (February 1, 2002) (SR-NYSE-2001-50), and recently extended for 
an additional year by Securities Exchange Act Release No. 46906 
(November 25, 2002), 67 FR 72260 (December 4, 2002) (SR-NYSE-2002-
47).
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    Auto ex orders that cannot be immediately executed shall be 
displayed as limit orders in the auction market. An auto-ex order equal 
to or greater than the size of the NYSE's published bid or offer shall 
trade against the entire published bid or offer, and a new bid or offer 
shall be published pursuant to Rule 60(e). The unfilled balance of the 
auto ex order shall be displayed as a limit order in the auction 
market.
    During a one-week pilot program in 2003, NYSE Direct+ shall not be 
available in the following five stocks: American Express (AXP), Pfizer 
(PFE), International Business Machines (IBM), Goldman Sachs (GS), and 
Citigroup (C). The Exchange will announce in advance to its membership 
the week the pilot will run.
* * * * *

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. The 
text of these statements may be examined at the places specified in 
Item III 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
    The Exchange has begun to test on the Exchange's floor its 
initiative to disseminate ``liquidity quotes'' \5\ in addition to the 
NYSE's highest bid and lowest offer. As part of this initiative, the 
Exchange has amended Rule 60 to provide that the Exchange will 
``autoquote'' or automatically update the NYSE's highest bid or lowest 
offer whenever a limit order is transmitted to the specialist's book at 
a price higher (lower) than the previously disseminated highest 
(lowest) bid (offer).\6\ When the NYSE's highest bid or lowest offer 
has been traded with in its entirety, the Exchange will autoquote a new 
bid or offer reflecting the total size of orders on the specialist's 
book at the next highest (in the case of a bid) or lowest (in the case 
of an offer) price.\7\
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    \5\ Liquidity quotes represent additional buying and selling 
interest below the best bid and above the best offer.
    \6\ See Securities Exchange Act Release No. 47614 (April 2, 
2003), 68 FR 17140 (April 8, 2003) (order approving SR-NYSE-2002-
55).
    \7\ See id.
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    The NYSE believes that both NYSE Direct+ and autoquoting have the 
potential to impact the functioning of the NYSE's auction market, as 
they involve, without specialist or trading crowd intervention, changes 
to the depth of the market and prices at which securities may trade. 
NYSE Direct+ involves automatic executions of limit orders of 1,099 
shares or less against the Exchange's best bid or offer.\8\ According 
to the Exchange, NYSE Direct+ executions have the potential to change 
the depth of the market, as well as the tick and last reported sale. 
Autoquoting involves the automatic adjustment of the Exchange's 
disseminated bids/offers as new limit orders are received onto the 
specialist's book.
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    \8\ See supra note 4.
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    In anticipation of the rollout of NYSE Liquidity 
Quote,SM as approved in SR-NYSE-2002-55,\9\ the Exchange 
would like to test the impact of autoquoting without the impact of NYSE 
Direct+ occurring at the same time. To do so, the Exchange is proposing 
to disengage NYSE Direct+ in five actively-traded stocks during a one-
week pilot program. The stocks, which include one company from each of 
the Exchange's five largest specialist units, are American Express 
(AXP), Pfizer (PFE), International Business Machines (IBM), Goldman 
Sachs (GS), and Citigroup (C). The Exchange represents that it will 
study the impact of autoquoting on the Exchange floor \10\ with regard 
to liquidity, continuity, spread, depth, number of trades, and other 
variables.
    The Exchange notes that any NYSE Direct+ order (``auto-ex order'') 
that would be entered during the one-week pilot in the five stocks 
mentioned above would automatically be converted to a SuperDOT order 
during that time for representation by the specialist in the Exchange's 
auction market.\11\ Further, the Exchange intends to implement the one-
week pilot as soon as practicable after Commission approval and will 
notify the Exchange's membership at least one week prior to the actual 
implementation date of the one-week pilot.\12\
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    \9\ See supra note 6.
    \10\ Telephone conversation among Sonia Trocchio, Special 
Counsel, Division, Commission, Donald Siemer, Director, Rule 
Development and Jeffrey Rosenstruck, NYSE, dated May 2, 2003.
    \11\ Currently, under Exchange Rule 1000, auto-ex orders that 
cannot be immediately executed shall be converted into SuperDot 
orders and displayed as limit orders in the auction market. 
Telephone conversation among Sonia Trocchio, Special Counsel, 
Division, Commission, Donald Siemer, Director, Rule Development and 
Jeffrey Rosenstruck, NYSE, dated May 2, 2003.
    \12\ See Amendment No. 1, supra note 3.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b)(5) of the Act,\13\ which requires, among 
other things, that the Exchange's rules 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.
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    \13\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will not 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 not solicited nor received written comments on the 
proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and

[[Page 25073]]

arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2003-10 and should be submitted by May 30, 2003.

IV. Commission Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    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. In 
particular, the Commission believes that the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act,\14\ 
which requires, among other things, that the rules of the Exchange be 
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.\15\
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    \14\ 15 U.S.C. 78f(b)(5).
    \15\ In approving the proposed rule, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    The Commission believes that the proposal should help the NYSE to 
maintain a fair and orderly market by enabling the NYSE to test its 
autoquoting feature without the interruption of NYSE Direct+, which 
automatically changes the depth of market, as well as the tick and last 
reported sale in these stocks. In addition, the Commission notes that 
NYSE has represented that it will notify members at least one week in 
advance of the implementation date of the pilot.
    The Commission finds good cause for accelerating approval of the 
proposed rule change and Amendment No. 1 prior to the thirtieth day 
after publication in the Federal Register. The Commission believes that 
accelerated approval will permit the Exchange, without undue delay, to 
assess the impact of autoquoting on the Exchange's auction market, 
particularly with regard to liquidity, continuity, spread, depth, 
number of trades, and other such variables.
    Accordingly, the Commission finds good cause, consistent with 
Section 19(b)(2) of the Act,\16\ to approve the proposed rule change, 
as amended, prior to the thirtieth day after publication of the notice 
of filing, on a pilot basis for seven days.
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    \16\ 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,\17\ that the proposed rule change, as amended, (File No. SR-NYSE-
2003-10) be approved as a one week pilot, on an accelerated basis.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-11588 Filed 5-8-03; 8:45 am]
BILLING CODE 8010-01-P