[Federal Register Volume 69, Number 53 (Thursday, March 18, 2004)]
[Notices]
[Pages 12884-12886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6103]



[[Page 12884]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49391; File No. SR-NYSE-2003-42]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc. 
To Amend Its Rules 13, 72, 76 and 91 To Establish a Six-Month Pilot 
Program in Selected Stocks To Provide That Institutional 
XPress[reg] Orders Be Executed Immediately Against an 
Institutional XPress[reg] Eligible NYSE 
LiquidityQuoteSM Bid or Offer and Not Be Exposed for Price 
Improvement

March 10, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 16, 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 
February 20, 2004, the Exchange amended the proposed rule change.\3\ 
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, 
Commission, dated February 19, 2004 (``Amendment No. 1''). In 
Amendment No. 1, the Exchange provided additional discussion on the 
size requirements for XPress[reg] orders to trade with a 
LiquidityQuoteSM bid or offer, removed the last sentence 
of the proposed language in NYSE Rule 91.50, and renumbered the 
language proposed in NYSE Rule 91.50 to NYSE Rule 91.60.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NYSE is proposing to amend NYSE Rules 13, 72, 76 and 91 to 
establish a six-month pilot program in selected stocks to provide that 
Institutional XPress[reg] orders be executed immediately 
against an Institutional XPress[reg] eligible NYSE 
LiquidityQuoteSM bid or offer and not be exposed for price 
improvement. Below is the text of the proposed rule change, as amended. 
Proposed new language is in italics; proposed deletions are in 
[brackets].
* * * * *

Definitions of Orders

Rule 13
* * * * *
XPress Order
    An order to buy or sell a security for no less than such number of 
shares as the Exchange shall from time to time determine and no more 
than the displayed size of an XPress quote, as defined below, which 
order is to be executed [in whole or in part at the price of the XPress 
quote, if available, or at a better price if obtainable.] (i) in the 
case of an execution at the best bid or offer, or in the case of an 
execution at a liquidity bid or offer in a stock not part of the pilot 
program specified in (ii), in whole or in part at the price of an 
XPress-eligible bid or offer, if available, or at a better price, if 
obtainable; or (ii) in the case of an execution at a liquidity bid or 
offer, at the price of such XPress-eligible liquidity bid or offer 
pursuant to a pilot program in such stocks as the Exchange shall make 
known to its membership. The portion not so executed shall be treated 
as cancelled.
    An XPress quote is a quote so indicated by the Exchange. In order 
to be indicated as an XPress quote, a published bid or offer must be at 
the same price, for no less than the number of shares and the minimum 
period of time that the Exchange shall from time to time determine. If 
the XPress bid or offer price changes or the published bid or offer 
size is less than such number of shares, the bid or offer shall no 
longer be indicated as an XPress quote. (See also Rule 72.50.)
    The Exchange shall make known to its membership the minimum size 
for XPress orders and the minimum size and time requirements for XPress 
quotes.
    XPress orders may be entered up to 3:58 p.m. or up until two 
minutes prior to any other closing time on the Exchange.
* * * * *

Priority and Precedence of Bids and Offers

Rule 72
* * * * *
    .50 XPress Orders.--An execution of an XPress order, in whole or in 
part, shall not remove bids or offers from the Floor. Once an XPress 
order has been represented in the Crowd, no part of the XPress bid or 
offer against which the XPress order is to be executed shall be 
withdrawn, except to provide price improvement to all or part of the 
XPress order. When an XPress order has been executed in part at an 
improved price, the remainder of such order shall be executed at the 
XPress bid or offer up to the number of shares then available, 
regardless of whether such number is less than the minimum size for an 
XPress quote. All XPress orders shall be executed in strict time 
priority with respect to each other. A member who is providing a better 
price to an XPress order must trade with all other market interest 
having priority at that price before trading with the XPress order. 
This rule shall not apply in the case of an XPress order received by 
the specialist seeking to trade against an XPress-eligible liquidity 
bid or offer pursuant to a pilot program in such stocks as the Exchange 
shall make known to its membership.
* * * * *

``Crossing'' Orders

Rule 76
    When a member has an order to buy and an order to sell the same 
security, he shall, except for bonds traded through ABS[reg] 
publicly offer such security at a price which is higher than his bid by 
the minimum variation permitted in such security before making a 
transaction with himself. All such bids and offers shall be clearly 
announced to the trading crowd before the member may proceed with the 
proposed ``cross'' transaction.
    This rule shall not apply in the case of an XPress order received 
by the specialist seeking to trade against an XPress-eligible liquidity 
bid or offer pursuant to a pilot program in such stocks as the Exchange 
shall make known to its membership.
* * * * *

Taking or Supplying Securities Named in Order

Rule 91
* * * * *
    Supplementary Material:
    .10-.50. No Change.
    .60 XPress Orders.--The provisions of this Rule shall not apply in 
the case of an XPress order received by the specialist seeking to trade 
against an XPress-eligible liquidity bid or offer containing any 
specialist proprietary interest, pursuant to a pilot program in such 
stocks as the Exchange shall make known to its membership.
* * * * *

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

[[Page 12885]]

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 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's Institutional XPress[reg] (``XPress'') 
rules provide that XPress orders are entitled to trade against an 
XPress eligible bid or offer without interference, and must be exposed 
for price improvement. The current criteria for determining when a bid 
or offer is Institutional XPress eligible are: (i) With respect to the 
best bid or offer, the share size must be for at least 15,000 shares, 
and have been published for at least 15 seconds; and (ii) with respect 
to a NYSE LiquidityQuoteSM bid or offer,\4\ such bid or 
offer must have been published at the same price for at least 15 
seconds.
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    \4\ NYSE Liquidity QuoteSM is a real-time quote that 
shows the depth of market beyond the best bid or offer in the NYSE 
market reflecting at a single price the cumulative number of shares 
bid or offered on the limit order book, in the trading ``crowd'' and 
by the specialist as principal.
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    An XPress order seeking to trade against an XPress eligible best 
bid or offer must be for at least 15,000 shares. An XPress order 
seeking to trade against an XPress eligible NYSE 
LiquidityQuoteSM (``liquidity'') bid or offer must be for 
the size of such bid or offer.\5\ Under the current rules, an XPress 
order must be executed in whole or in part at the price of the XPress 
quote, if available, or at a better price, if obtainable. The portion 
not so executed is canceled. The price improvement aspect of the rules 
applies to XPress eligible best bids and offers and XPress eligible 
liquidity bids or offers.
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    \5\ In a prior filing, SR-NYSE-2002-55, the Exchange amended 
NYSE Rule 13.40 to provide that a NYSE LiquidityQuoteSM 
bid or offer, regardless of size, will be XPress eligible if it has 
been published for at least 15 seconds, and that the minimum number 
of shares for an XPress order seeking to trade with a 
LiquidityQuoteSM bid or offer must be for the size of 
such liquidity bid or offer. However, when the Exchange implemented 
NYSE LiquidityQuoteSM, the Exchange initially required 
XPress orders to be for at least 15,000 shares when entered against 
a liquidity bid or offer. The Exchange expects that the different 
size requirements for XPress orders entered to trade with a 
liquidity bid or offer will be implemented in the near future. The 
Exchange represents that an Information Memo announcing the 
implementation will be distributed at that time. See Amendment No. 
1, supra note 3.
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    According to the Exchange, there is a perceived difficulty with the 
current rules that may disincent entry of large limit orders which 
might be reflected in the published quotation as XPress eligible 
liquidity bids or offers. Concerns have been expressed to the Exchange 
that such orders would attract contra side XPress orders, which would 
not otherwise enter the market, and that these XPress orders may then 
receive price improvement. The Exchange believes that this results in 
liquidity-attracting XPress eligible limit orders remaining unexecuted, 
and possibly having to be re-entered at a worse price in order to be 
filled. Accordingly, the Exchange believes that such an outcome may 
undercut the viability of the XPress initiative to the community of 
investors that the Exchange seeks to attract.
    In order to address these concerns, the Exchange proposes to 
implement a six-month pilot program in selected stocks to modify the 
XPress rules to eliminate the requirement that an XPress order be 
exposed for price improvement before trading with an XPress eligible 
liquidity bid or offer. The pilot stocks would include a mix of both 
active and moderately active stocks, as would be made known to the 
membership. Under this proposal, an XPress order would be executed 
against an available XPress eligible liquidity bid or offer without 
being exposed for price improvement. Members who wish to participate in 
executions in these pilot stocks when an XPress eligible liquidity bid 
or offer is published could do so by bidding or offering at higher 
(lower) prices prior to the specialist's receipt of an XPress order. 
Alternatively, members seeking to interact with any XPress order at the 
XPress eligible liquidity bid or offer price would have to first have 
their interest reflected in the XPress eligible liquidity published 
quotation.
    The proposed rule change would amend the following rules: (i) NYSE 
Rule 13 to limit the broad reference to an XPress order receiving a 
better price if available, and to provide that an XPress order would be 
executed at the liquidity bid or offer price in the pilot stocks; (ii) 
NYSE Rule 72.50, which discusses how price improvement is provided to 
an XPress order, to reflect that it would not apply to the pilot 
stocks; (iii) NYSE Rule 76, which states the basic auction market 
crossing procedure for agency orders, to provide that it would not 
apply to an XPress order received by the specialist to trade against an 
XPress eligible liquidity bid or offer in the pilot stocks; and (iv) 
NYSE Rule 91, which requires crossing of an agency order before a 
member may trade with it as principal and contains a requirement that 
the customer confirm a specialist's principal transaction with the 
customer's order, to provide that this rule would not apply where an 
XPress order is executed against an XPress eligible liquidity bid or 
offer that includes any specialist proprietary interest in the pilot 
stocks.
    Although the Exchange is seeking at this time the authority to 
institute the pilot program, the Exchange would not actually implement 
the pilot program until certain technological enhancements are 
completed that would enable floor brokers to electronically input their 
trading interest into the Exchange's published quotation. The Exchange 
would notify the Commission as to the exact commencement date of the 
pilot program.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act,\6\ in general, and furthers 
the objectives of section 6(b)(5),\7\ in particular, because it is 
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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    \6\ 15 U.S.C. 78f(b).
    \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, as 
amended, 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 the proposed rule change, or

[[Page 12886]]

    (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 
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-2003-42. This file number should be 
included on the subject line if e-mail is used. To help the Commission 
process and review your comments more efficiently, comments should be 
sent in hard copy 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 Section. Copies of such filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
submissions should refer to File No. SR-NYSE-2003-42 and should be 
submitted by April 8, 2004.

    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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-6103 Filed 3-17-04; 8:45 am]
BILLING CODE 8010-01-P