[Federal Register Volume 68, Number 208 (Tuesday, October 28, 2003)]
[Notices]
[Pages 61532-61534]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27095]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48659; File No. SR-NYSE-2002-40]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 by the New York Stock Exchange, Inc. 
To Establish Two New Crossing Sessions in the Exchange's Off-Hours 
Trading Facility

October 20, 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 August 29, 2002, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. On August 14, 2003, the NYSE filed Amendment No. 1 to the 
proposed rule change.\3\ On October 8, 2003, the NYSE filed Amendment 
No. 2 to the proposed rule change.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Mary Yeager, Assistant Secretary, NYSE, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation, 
SEC, dated August 13, 2003, and enclosure (``Amendment No. 1''). 
Amendment No. 1 proposes to add ``Crossing Session IV.''
    \4\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy J. Sanow, Assistant Director, Division of Market 
Regulation, SEC, dated October 7, 2003, and enclosure (``Amendment 
No. 2''). Amendment No. 2 deletes the reference to a volume-weighted 
average price (``VWAP'') order from paragraph (c) of proposed Rule 
907.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The New York Stock Exchange (the ``Exchange'') proposes to 
introduce into its rules ``Crossing Session III,'' for the execution of 
guaranteed price coupled orders by member organizations to fill the 
balance of customer orders at a price that was guaranteed to a customer 
prior to the close of the Exchange's 9:30 a.m. to 4 p.m. trading 
session. In Amendment No. 1, the Exchange proposes to adopt a new Rule 
907 to also add a ``Crossing Session IV,'' whereby an unfilled balance 
of an order may be filled at a price such that the entire order is 
filled at no worse price than the Volume Weighted Average Price 
(``VWAP'') for the subject security. Proposed Crossing Session III and

[[Page 61533]]

Crossing Session IV would operate as a one-year pilot.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

Rule 900

    (a) Through (d)--No Change.
    (e) As used in this 900 series of Rules and other Rules in their 
application to Off-Hours Trading, the following terms shall have the 
meanings specified below:
    (i) The term ``aggregate-price order'' means an order to buy or 
sell a group of securities, which group includes no fewer than 15 
Exchange-listed securities having a total market value of $1 million or 
more.
    (ii) The term ``closing price'' means the price established by the 
last ``regular way'' sale in a security prior to the official closing 
of the 9:30 a.m. to 4 p.m. trading session, as determined by the 
Exchange.
    (iii) The term ``closing-price order'' means an order to buy or 
sell a security at its closing price.
    (iv) The term ``guaranteed price coupled order'' means an order to 
buy for a minimum of 10,000 shares coupled with an order to sell the 
same quantity of the same security. One side of the guaranteed price 
coupled order must be for the account of a member organization and the 
other side must be for the account of one of its customers. Such orders 
must be entered and priced in accordance with Rule 907.
    (v) [(iv)] The term ``Off-Hours Trading Facility'' means the 
Exchange facility that permits members and member organizations to 
effect securities transactions on the Exchange pursuant to this 900 
series of Rules. The term ``Off-Hours Trading'' refers to trading 
through that facility.

Rule 907

Guaranteed Price Coupled Orders

    (a) A member organization may enter into the Off-Hours Trading 
Facility a guaranteed price coupled order or an order to be executed at 
the volume weighted average price (``VWAP''), subject to the following:
    (i) The member organization has accepted from its customer prior to 
the close of trading of the Exchange's 9:30 a.m. to 4 p.m. trading 
session an order for at least 10,000 shares, and has guaranteed its 
customer a specific price with respect to the entire order or the VWAP;
    (ii) The member organization has recorded, along with all required 
details of the order, the guaranteed price or that the customer has 
elected the order be executed at the VWAP and has documented the basis 
upon which the VWAP is to be calculated;
    (iii) The guaranteed price coupled order or an order to be executed 
at the VWAP is for that portion of the customer's order that could not 
be executed prior to 4 p.m., but in any event must be at least 10,000 
shares;
    (iv) The guaranteed price coupled order or VWAP order is priced at 
a price that ensures that the entire order is executed at a price that 
is no worse than the guaranteed price or VWAP;
    (v) The member organization designates the guaranteed price coupled 
order as Crossing Session III and the VWAP order as Crossing Session 
IV.
    (b) A guaranteed price coupled order or VWAP order may be entered 
at any time following the close of the 9:30 a.m. to 4 p.m. trading 
session on the Exchange until the close of the Consolidated Tape.
    (c) A guaranteed price coupled order may be priced at a price that 
is outside the range of prices for the subject security during the 9:30 
a.m. to 4 p.m. trading session.
    (d) A guaranteed price coupled order or VWAP order shall be 
immediately executed upon entry into the Off-Hours Trading Facility.
    (e) Upon the close of the Consolidated Tape, the Exchange shall 
print each trade reported through the Off-Hours Trading Facility as 
guaranteed price coupled orders or VWAP orders. Guaranteed price 
coupled orders shall be designated as Crossing Session III. VWAP orders 
shall be designated as Crossing Session IV.
    (f) Member organizations shall not enter a guaranteed price coupled 
order or VWAP order pursuant to paragraph (a) of this Rule if the order 
is for a security that was subject to a trading halt at the time the 
Exchange's 9:30 a.m. to 4 p.m. trading session ended.
* * * * *

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 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. 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 purpose of the proposed rule change, as amended, is to add two 
additional ``Crossing Sessions'' to the Exchange's Off-Hours Trading 
Facility (``OHTF''). Currently, the OHTF consists of ``Crossing Session 
I,'' which permits the execution, at the Exchange's closing price, of 
single stock, single sided closing price orders and crosses of single-
stock, closing price buy and sell orders. The OHTF also consists of 
``Crossing Session II,'' which permits the execution of crosses of 
multiple-stock (``basket'') aggregate price buy and sell orders. For 
Crossing Session II, trade reporting is accomplished by reporting to 
the Consolidated Tape the total number of shares and the total market 
value of the aggregate-price trades. There is no indication of the 
individual component stocks involved in the aggregate-price 
transactions.
    As described below, the Exchange is proposing to add a new 
``Crossing Session III,'' which would allow for the execution on the 
NYSE of ``guaranteed price coupled orders'' whereby member 
organizations could fill the unfilled balance of a customer order at a 
price which was guaranteed to the customer prior to the close of the 
Exchange's 9:30 a.m. to 4 p.m. trading session. Crossing Session III 
would be implemented initially as a one-year pilot program.
    The Granting of ``Upstairs Stops''. In serving their institutional 
customers, member firms may offer them a guarantee that a large size 
order will receive no worse than a particular price. Such a practice is 
usually referred to as an ``upstairs stop'' meaning that the firm 
guarantees that its customer's order will be executed at no worse price 
than the agreed-upon, guaranteed price, with the member firm trading 
for its own account, if necessary, to effectuate the guarantee.
    Typically, a member firm will seek to execute as much of the order 
as possible during the trading day at or below the ``stop'' price (in 
the case of a buy order) or at or above the ``stop'' price (in the case 
of a sell order). Any portion of the order not filled during the 
trading day will be completed after hours, with the firm either buying 
from, or selling to, its customer at a price which ensures that the 
entire order is executed at a price which is no worse than the ``stop'' 
price.
    Member firms typically execute the unfilled balance of the order, 
after the U.S. Consolidated Tape is closed, in the London over-the-
counter market, where

[[Page 61534]]

trades are not reported in real time. The purpose of this is simply to 
minimize the possibility that other market participants may ascertain 
the firm's, or the customer's inventory position, and possibly trade in 
the subject security to the detriment of the firm that granted the 
upstairs stop.
    The Exchange is proposing to adopt a new post 4 p.m. ``Crossing 
Session'' to accommodate member firms that are trading to complete an 
``upstairs stop'' and thereby obviate any perceived need to execute 
these transactions in London or elsewhere.
    In Amendment No. 1, the Exchange is proposing to adopt a new Rule 
907 to add, as ``Crossing Session IV,'' a facility whereby member 
organizations may fill the unfilled balance of a customer's order at a 
price such that the overall order is filled at a price that is no worse 
than the volume weighted average price (``VWAP'') for the subject 
security on that trading day. The member organization would be required 
to document its VWAP agreement with the customer and the basis upon 
which the VWAP price would be determined. Crossing Session IV would be 
implemented initially as a one-year pilot program.
    The Operation of Crossing Session III and Crossing Session IV. 
Proposed Crossing Session III and Crossing Session IV would operate as 
follows:
    (i) The original order as to which an ``upstairs stop'' or ``VWAP'' 
has been granted must be for at least 10,000 shares;
    (ii) The customer must have received a ``stop'' (guaranteed price) 
or VWAP for the entire order;
    (iii) The member firm must record all details of the order, 
including the price it has guaranteed its customer or that the entire 
order will be filled at no worse than the VWAP;
    (iv) The unfilled balance of the order that would be executed in 
Crossing Session III or Crossing Session IV must be at least 10,000 
shares;
    (v) The customer's order must be executed in Crossing Session III 
or Crossing Session IV at a price that ensures that the entire order is 
executed at a price that is no worse than the guaranteed price or the 
VWAP;
    (vi) Orders may be entered in Crossing Session III or Crossing 
Session IV between 4 p.m. and 6:30 p.m., and must be identified as 
either a Crossing Session III or Crossing Session IV order;
    (vii) Member firms will receive an immediate report of execution 
upon entering an order into Crossing Session III or Crossing Session 
IV;
    (viii) Orders may be entered into Crossing Session III for 
execution at prices outside the trading range in the subject security 
during the 9:30 a.m. to 4 p.m. trading session;
    (ix) Orders may not be entered into Crossing Session III or 
Crossing Session IV in a security that is subject to a trading halt at 
the close of the regular 9:30 a.m. to 4 p.m. trading session; and
    (x) At 6:30 p.m., the Exchange will print trades reported through 
Crossing Session III as guaranteed price coupled orders or in Crossing 
Session IV as VWAP executions.
    A proposed amendment to Rule 900 provides a definition of 
``guaranteed price coupled orders.'' Proposed new Rule 907 prescribes 
the operation of Crossing Session III and Crossing Session IV as 
described above.
    Relief from Commission Rules. In approving Crossing Session I and 
Crossing Session II, the Commission granted exemptive relief from its 
Rule 10a-1 \5\ under the Securities Exchange Act of 1934 (the ``Act'') 
(short sale rule) for transactions effected therein, finding that such 
transactions did not raise all of the same regulatory concerns that are 
raised by similar transactions during the 9:30 a.m. to 4:00 p.m. 
trading session. In its filing, the Exchange requests that the 
Commission extend the exemptive relief from Rule 10a-1 currently 
available for transactions effected in Crossing Sessions I and II to 
transactions effected in Crossing Session III as well. However, the 
NYSE has withdrawn its request for exemptive relief with respect to 
Crossing Session III.\6\ In Amendment No. 1, the Exchange did not 
request short sale relief with respect to Crossing Session IV.
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    \5\ 17 CFR 240.10a-1.
    \6\ Telephone conversation between Robert J. McSweeney, Senior 
Vice President, Competitive Position, NYSE, and Mary N. Simpkins, 
Special Counsel, Division of Market Regulation, Commission, on 
August 19, 2003.
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2. Statutory Basis
    The NYSE believes that the basis under the Act for this proposed 
rule change is the requirement under Section 6(b)(5) \7\ that an 
Exchange 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.
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    \7\ 15 U.S.C. 78f(b)(5).
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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 Exchange consents, the Commission will:
    (A) By order approve such 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 proposed rule 
change 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 number SR-NYSE-2002-40 and 
should be submitted by November 18, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority\8\.
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27095 Filed 10-27-03; 8:45 am]
BILLING CODE 8010-01-P