[Federal Register Volume 69, Number 13 (Wednesday, January 21, 2004)]
[Notices]
[Pages 2958-2959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1212]



[[Page 2958]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49063; File No. SR-NYSE-2003-36]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the New York Stock Exchange, Inc. Relating to Interpretation of Rule 
15A (ITS ``Trade-Throughs'' and ``Locked Markets'')

January 13, 2004.
    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 18, 2003, 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 Exchange. On 
January 6, 2004, the Exchange submitted 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See e-mail from Karen Lorentz, Director of Intermarket 
Relations, NYSE, to Katherine England, Assistant Director, Division 
of Market Regulation, Commission, dated January 6, 2004 (``Amendment 
No. 1''). In Amendment No. 1, the NYSE clarified that the proposed 
interpretation will be added as rule text immediately after NYSE 
Rule 15A.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change is based on a long-standing interpretation 
of NYSE Rule 15A (ITS ``Trade-Throughs'' and ``Locked Markets'') that 
trading on the NYSE and sending contemporaneously an Intermarket 
Trading System (``ITS'') commitment to trade to another participating 
market to fully satisfy the quote thereon constitutes full compliance 
with the Rule. A complaint under these circumstances is not valid, even 
if the commitment cancels/expires or there is more stock behind the 
quote on the other market. The text of the interpretation is below:
* * * * *
Rule 15A. ITS ``Trade-Throughs'' and ``Locked Markets''
    (a)-(e) No Change.
Interpretation
    i. the terms ``Exchange trade-through'' and ``Third participating 
market center trade-through'' do not include the situation where a 
member who initiates the purchase (sale) of an ITS security at a price 
which is higher (lower) than the price at which the security is being 
offered (bid) in another ITS participating market, sends 
contemporaneously through ITS to such ITS participating market a 
commitment to trade at such offer (bid) price or better and for at 
least the number of shares displayed with that market center's better-
priced offer (bid); and
    ii. a trade-through complaint sent in these circumstances is not 
valid, even if the commitment sent in satisfaction cancels or expires, 
and even if there is more stock behind the quote in the other market.
* * * * *

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. 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 is proposing to codify a long-standing interpretation 
of NYSE Rule 15A. NYSE Rule 15A uses certain defined terms as follows:
    [sbull] An ``Exchange trade-through'', as that term is used in this 
Rule, occurs whenever a member on the Exchange initiates the purchase 
on the Exchange of a security traded through ITS (an ``ITS Security'') 
at a price which is higher than the price at which the security is 
being offered (or initiates the sale on the Exchange of such a security 
at a price which is lower than the price at which the security is being 
bid for) at the time of the purchase (or sale) in another ITS 
participating market center as reflected by the offer (bid) then being 
displayed on the Exchange from such other market center. The member 
described in the foregoing sentence is referred to in this Rule as the 
``member who initiated an Exchange trade-through.''
    [sbull] A ``third participating market center trade-through'', as 
that term is used in this Rule, occurs whenever a member on the 
Exchange initiates the purchase of an ITS Security by sending a 
commitment to trade through the system and such commitment results in 
an execution at a price which is higher than the price at which the 
security is being offered (or initiates the sale of such a security by 
sending a commitment to trade through the System and such commitment 
results in an execution at a price which is lower than the price at 
which the security is being bid for) at the time of the purchase (or 
sale) in another ITS participating market center as reflected by the 
offer (bid) then being displayed on the Exchange from such other market 
center. The member described in the foregoing sentence is referred to 
in this Rule as the ``member who initiated a third participating market 
center trade-through.''
    [sbull] A ``trade-through,'' as that term is used in this Rule, 
means either an Exchange trade-through or a third participating market 
center trade-through.
    The Exchange believes that the basic concept of the trade-through 
rule is that superior priced quotations in a security displayed from 
other participant markets should be protected/satisfied if, in another 
participant market, an execution in the security occurs at an inferior 
price (a trade-through). One of the remedies that NYSE Rule 15A 
provides is that, upon a valid complaint of a trade-through, a 
commitment to trade at the price, and for the number of shares in the 
disseminated quotation, must be sent to the other Participant market to 
fully satisfy such quotation. The Exchange believes that the proposed 
interpretation has long recognized that superior quotations are fully 
protected/satisfied if an ITS commitment is sent to trade with a bid/
offer that would otherwise appear to have been traded-through. That is, 
a trade will not be considered a trade-through if an ITS commitment is 
sent contemporaneously from the participant executing the trade for the 
purpose of being executed against the better-priced displayed bid or 
offer. A complaint is not valid even if a commitment cancels or expires 
or there is more stock behind the away quote. Furthermore, the Exchange 
believes that the interpretation recognizes the impracticality of 
having to wait for the other market to revise its quotation as a result 
of trading with a satisfying commitment before trade activity may occur 
in other markets. Specifically, the interpretation states that:
    i. The terms ``Exchange trade-through'' and ``Third participating 
market center trade-through'' do not include the

[[Page 2959]]

situation where a member who initiates the purchase (sale) of an ITS 
security at a price which is higher (lower) than the price at which the 
security is being offered (bid) in another ITS participating market, 
sends contemporaneously through ITS to such ITS participating market a 
commitment to trade at such offer (bid) price or better and for at 
least the number of shares displayed with that market center's better-
priced offer (bid); and
    ii. A trade-through complaint sent in these circumstances is not 
valid, even if the commitment sent in satisfaction cancels or expires, 
and even if there is more stock behind the quote in the other market.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with section 
6(b) of the Act,\4\ in general, and Section 6(b)(5) of the Act,\5\ in 
particular, in that it will promote just and equitable principles of 
trade, facilitate transactions in securities, remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system, and protect investors and the public interest.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(i) of the Act \6\ and subparagraph (f)(1) of Rule 19b-4 
thereunder,\7\ because it is concerned solely with the interpretation 
of the meaning, administration or enforcement of existing NYSE Rule 
15A. At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.\8\
---------------------------------------------------------------------------

    \6\ 15 U.S.C 78s(b)(3)(A)(i).
    \7\ 17 CFR 240.19b-4(f)(1).
    \8\ For purposes of determining the effective date of the filing 
and calculating the 60-day abrogation date, the Commission considers 
the period to commence on January 6, 2004, the date the NYSE filed 
Amendment No. 1.
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
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. Comments may also be submitted electronically at the 
following e-mail address: [email protected]. All comment letters 
should refer to File No. SR-NYSE-2003-36. This file number should be 
included on the subject line if e-mail is used. To help the Commission 
process and review comments more efficiently, comments should be sent 
in hardcopy or by e-mail but not by both methods. 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-2003-36 and should be 
submitted by February 11, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-1212 Filed 1-20-04; 8:45 am]
BILLING CODE 8010-01-P