[Federal Register Volume 69, Number 63 (Thursday, April 1, 2004)]
[Notices]
[Pages 17255-17257]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7275]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49476; File No. SR-NYSE-2004-09]


Self-Regulatory Organizations; Notice of Filing of a Proposed 
Rule Change by the New York Stock Exchange, Inc. to Amend NYSE Rule 
123C Relating to Market-on-Close Policy and Expiration Procedures

March 25, 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 February 19, 2004, 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. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Rule 123C to change the 
procedures for entry and publication of imbalances in market-on-close 
and limit-on-close orders. The text of the proposed rule change is 
available at the NYSE and at the Commission.

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 NYSE has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

[[Page 17256]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NYSE Rule 123C (Market-on-the-Close Policy and Expiration 
Procedures) \3\ defines market-on-close (``MOC'') and limit-on-close 
(``LOC'') orders. An MOC order is a market order that is to be executed 
in its entirety at the closing price. If not executed due to a trading 
halt or because of its terms, (e.g., buy minus or sell plus), this type 
of order will be cancelled. Furthermore, NYSE Rule 123C defines an LOC 
order as one that is entered for execution at the closing price, 
provided that the closing price is at or within the limit specified. 
LOC orders are prioritized on the specialist's book by time of entry 
and go behind all other orders on the specialist book at that price 
regardless of when such other orders are received. LOC orders with 
prices that are better than the closing price in the subject security 
are guaranteed an execution unless there is a trading halt in the 
security. LOC orders limited at the closing price are not guaranteed an 
execution.
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    \3\ The Exchange's Market-On-Close/Limit-On-Close Policy has 
been codified as NYSE Rule 123C. See Securities Exchange Act Release 
No. 46579 (October 1, 2002), 67 FR 63004 (October 9, 2002) (SR-NYSE-
2003-31).
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Current Procedures
    NYSE Rule 123C requires that all MOC and LOC orders be entered by 
3:40 p.m. in any stock on any trading day, unless entered to offset a 
published imbalance, or on either side of the market if a regulatory 
halt is in effect at 3:40 p.m. or occurs after that time. Floor brokers 
representing MOC/LOC orders in any stock must communicate their 
irrevocable MOC/LOC interest to the specialist by 3:40 p.m. In 
addition, NYSE Rule 123C prohibits the cancellation of MOCs and LOCs 
after 3:40 p.m., except in the case of legitimate error (e.g., side, 
size, symbol, price, or duplication of an order), when a regulatory 
trading halt is in effect at, or occurs after, 3:40 p.m., or to comply 
with the provisions of NYSE Rule 80A.\4\
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    \4\ NYSE Rule 80A requires index arbitrage orders in any stock 
in the Standard & Poor's 500 Stock Price Index entered on the 
Exchange to be stabilizing (i.e., buy minus or sell plus) when the 
Dow Jones Industrial Average (``DJIA'') declines below/advances 
above its closing value on the previous trading day by at least 2.0% 
rounded down to the nearest 10 points, of the average closing value 
of the DJIA for the last month of the previous quarter. When these 
Rule provisions are triggered, an MOC index arbitrage order without 
the appropriate tick restriction must be cancelled by 3:50 p.m. 
unless it is related to an expiring derivative index product.
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    Between 3:40 and 3:50 p.m., MOC/LOC orders are irrevocable, except 
to correct a legitimate error, when a regulatory trading halt is in 
effect at or occurs after 3:40 p.m., or to comply with the provisions 
of NYSE Rule 80A.
    In the case of a regulatory halt, MOC orders may be entered until 
3:50 p.m. or until the stock reopens, whichever occurs first, even if 
an imbalance publication occurred prior to the regulatory halt. 
Cancellation or reductions in size of MOC/LOC orders after 3:50 p.m. 
are not permitted for any reason, including in case of legitimate error 
or to comply with the provisions of NYSE Rule 80A.
Proposed Rule Amendments
    The Exchange is proposing to amend NYSE Rule 123C to provide that 
all MOC orders, including those entered by brokers in the crowd, must 
be entered electronically by 3:50 p.m, rather than by 3:40 p.m. As 
under the current rule, no orders may be cancelled after 3:50 p.m.
    The Exchange believes that requiring MOC interest to be 
electronically entered will increase the efficiency at the point of 
sale. Publications will be systemically generated, allowing for greater 
control in active trading crowds and providing accurate information 
immediately to all participants. Furthermore, the Exchange believes 
that moving the MOC cut-off from 3:40 p.m. to 3:50 p.m. will allow 
traders and floor brokers greater control of the execution of their 
customer's orders and greater participation in active markets. As a 
result of the proposed change, market participants will be able to use 
SuperDot to guarantee the closing price for the balance of their orders 
by allowing such participants an additional ten minutes to interact in 
active markets.
LOC Orders
    The Exchange is proposing to amend NYSE Rule 123C to provide that 
LOC orders must also be entered electronically by 3:50 p.m., except for 
orders entered to offset final MOC imbalance publications. LOC orders 
entered to offset final MOC imbalances must also be entered 
electronically and priced using the last sale at time of such 
publication as the order's best limit (e.g., sell LOC must be limited 
to the last sale or higher). The Exchange believes that the same 
rationale that justifies the proposed amendments to MOC orders (as 
described above) also applies here. Furthermore, the Exchange believes 
that by encouraging the use of LOC orders to add liquidity to the 
close, the Exchange expects to achieve minimal price dislocations.
    In addition, the Exchange proposes to disseminate LOC interest 
through various Exchange venues including NYSE OPENBOOK (``Openbook''). 
In order to implement this initiative, the Exchange will include LOC 
interest information in its OpenBook information dissemination.\5\
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    \5\ The dissemination of LOC interest information in the 
Exchange's OpenBook is the current change proposed by the NYSE in 
order to implement its electronic LOC order entry initiative. See, 
March 24, 2004 telephone conversation between Donald Siemer, 
Director, Market Surveillance, NYSE, and A. Michael Pierson, 
Attorney, Division of Market Regulation, Commission.
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Publication of MOC Imbalances
    Currently, NYSE Rule 123C provides that the last sale price at 3:40 
p.m. is used for the first imbalance publication, and 3:50 p.m. for the 
second imbalance publication. The Exchange is proposing to amend NYSE 
Rule 123C to provide that the last sale price at 3:50 p.m. be used for 
the only imbalance publication, as this would conform the rule with the 
proposal to move the MOC cut-off time from 3:40 p.m. to 3:50 p.m.
    In addition, NYSE Rule 123C requires that if an imbalance or ``no 
imbalance'' notice is published at 3:40 p.m., a significant imbalance 
or one of 50,000 shares or more (or, in their absence, a no imbalance 
notice) must be published as soon as possible after 3:50 p.m.
    The Exchange is proposing to amend NYSE Rule 123C to provide that 
orders to offset published imbalances must be entered electronically 
and will be accepted in time priority only to the extent of the 
published imbalance. Paper orders will not be accepted. In addition, 
the Exchange is proposing that any offset order or unexecuted portion 
will be cancelled electronically.
    The Exchange is also proposing that if an imbalance pairs-off prior 
to 3:55 p.m., the specialist shall publish that fact. As soon as 
practicable after 3:55 p.m., the specialist shall publish the then-
existing imbalance, if it is greater than 50,000 shares (or such other 
size as approved by a Floor Official), or shall publish a ``no 
imbalance'' message.
    These proposed changes to NYSE Rule 123C will require technology 
upgrades to the Exchange systems utilized for MOC/LOC order processing, 
the schedule for which is being determined. The Exchange will notify 
its membership and the Commission of the timing of implementation of 
the proposed changes to NYSE Rule 123C. Additionally, after the 
Commission has approved these proposed rule changes, the Exchange 
intends to issue an

[[Page 17257]]

Information Memo to inform its members of the revised procedures.
2. Statutory Basis
    The NYSE believes the basis under the Act for this proposed rule 
change is the requirement under Section 6(b)(5) \6\ 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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    \6\ 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 the 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 proposal 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-2004-09. 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 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 No. SR-NYSE-2004-09 and should 
be submitted by April 22, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-7275 Filed 3-31-04; 8:45 am]
BILLING CODE 8010-01-P