[Federal Register Volume 69, Number 72 (Wednesday, April 14, 2004)]
[Notices]
[Pages 19890-19894]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-8446]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49536; File No. SR-NYSE-2003-37]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc. 
To Amend Exchange Rule 124 To Change the Way Odd-Lot Orders Are Priced 
and Executed Systemically

April 7, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, 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 March 
31, 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.
---------------------------------------------------------------------------

    \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, Commission, dated March 30, 2004 and accompanying Form 
19b-4. (``Amendment No. 1''). Amendment No. 1 replaced the original 
rule filing in its entirety.
---------------------------------------------------------------------------

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

    The proposed rule change seeks to amend NYSE Rule 124 to change the 
way odd-lot orders are priced and executed systemically. Below is the 
text of the proposed rule change. Proposed new language is in italics; 
proposed deletions are in [brackets].
* * * * *
    Rule 124. (a) Except as provided below, all orders for less than 
the unit of trading (``odd-lot orders'') shall be received, processed, 
and executed by means of the Exchange system designated for such 
purpose (``the System''). The specialist for the subject security shall 
be the contra party to all such executions. No differential or 
commission may be charged with respect to any odd-lot order received by 
the System. All odd-lot orders entered for execution to the System 
shall contain the appropriate account type identification code 
according to specified account type categories in accordance with the 
reporting requirements of Rule 132.
    (b) Market Orders. Odd-lot market orders received by the System 
shall be executed in time priority of receipt by the System at the 
price of the next round-lot transaction on the Exchange in the subject 
security following receipt of the orders by the System, subject to the 
following:
    (i) Odd-lot buy orders and odd-lot sell orders will be executed at 
the price of such round-lot transaction with the specialist as the 
contra side to the extent that such odd-lot orders total an equal 
number of shares bought and sold.
    (ii) The total number of additional shares of odd-lot orders 
executed at the price of such round lot transaction shall not exceed 
the number of shares of such round-lot transaction, except that an odd-
lot order which would otherwise receive a partial execution shall be 
executed in full.
    (iii) Odd-lot market orders not executed pursuant to paragraph (i) 
or (ii) above shall be executed, in time priority order, at the price 
of the subsequent round-lot transactions, subject to the same 
procedures stated in paragraph (i) and (ii) as to volume of round-lot 
transactions.
    (iv) Any odd-lot market order not executed within 30 seconds of 
receipt by the System pursuant to paragraphs (i), (ii) or (iii) above 
shall be executed, in the case of an order to buy, at the price of the 
adjusted ITS offer after 30 seconds, and in the case of an order to 
sell, at the price of the adjusted ITS bid after 30 seconds.
    (v) Odd-lot market orders entered before the opening of the subject 
security shall be executed at the price of the opening transaction.
    (vi) If odd-lot market orders are entered within 30 seconds of the 
close of trading and have not been executed prior to the closing 
transaction, an odd-lot market order to buy shall be executed at the 
price of the adjusted ITS offer at 4:00 p.m. (or such other closing 
time), and an order to sell shall be executed at the price of the 
adjusted ITS bid at 4:00 p.m. (or such other closing time).
    (vii) An odd-lot market order to sell short shall be executed at 
the price of the next sale in the round-lot market on the Exchange 
following entry of the order which is higher than the last different 
round-lot price.
    (c) Limit Orders. Odd-lot limit orders received by the System shall 
be executed in time priority of receipt by the System at prices of 
round-lot transactions effected subsequent to receipt of the orders by 
the System, that are at or better than the limit prices on the odd-lot 
orders, subject to the principles of paragraphs (b) (i), (ii) and (iii) 
above.
    (d) Limit Orders to Sell Short. An odd-lot limit order to sell 
short shall be executed at the price of the first round-lot transaction 
on the Exchange which is at or above the specified limit of the order, 
and which is also higher than the last different round-lot transaction 
(a ``plus'' or ``zero plus'' tick).
    (e) Market Stop Orders. Odd-lot market stop orders shall be 
executed as follows:
    (i) Buy Stop Orders. A buy stop order shall become a market order 
when a round-lot transaction takes place at or above the stop price. 
The order shall then be filled at the price of the next round-lot 
transaction, as provided in (b) above.
    (ii) Sell Stop Orders, Marked ``Long''. A sell stop order marked 
``long'' shall become a market order when a round-lot transaction takes 
place at or below the stop price. The order shall then be filled at the 
price of the next round-lot transaction, as provided in (b) above.
    (iii) Sell Stop Orders, Marked ``Short''. A sell stop order marked 
``short'' shall become a market order when a round-lot transaction 
takes place at or below the stop price. The order shall then be filled 
at the price of the next round-lot transaction, which is higher than 
the last different round-lot transaction (a ``plus'' or ``zero plus'' 
tick) as provided in (b) above.
    (f) Limit Stop Orders. Odd-lot stop limit orders shall be executed 
as follows:
    (i) Buy Stop Limited Orders. A buy stop limited order shall become 
a limited order when a round-lot transaction takes place at or above 
the stop price. The order shall then be filled in the manner prescribed 
in (c) above for handling a limited order to buy.

[[Page 19891]]

    (ii) Sell Stop Limited Orders, Marked ``Long''. A sell stop limited 
order marked ``long'' shall become a limited order when a round-lot 
transaction takes place at or below the stop price. The order shall 
then be filled in the manner prescribed in (c) above for handling a 
limited order to sell.
    (iii) Sell Stop Limited Orders, Marked ``Short''. A sell stop 
limited order marked ``short'' shall become a limited order when a 
round-lot transaction takes place at or below the stop price. The order 
shall then be filled in the manner prescribed in (d) above for handling 
a limited order to sell.
    [(A) Any market order to purchase or sell a security in an amount 
less than the unit of trading (an odd-lot order) which is transmitted 
for execution to a member organization engaged in the odd-lot business 
or its agent shall be executed, unless otherwise provided herein, at 
the price of the adjusted ITS bid (in the case of an order to sell) or 
adjusted ITS offer (in the case of an order to purchase) in the 
security at the time the order is received by the Exchange system 
designated to process odd-lot orders (``the odd-lot system''). In 
instances in which quotation information is not available, e.g., the 
quotation collection or dissemination facilities are inoperable, or the 
market in a security has been determined to be in a ``non-firm mode'' 
(as defined in Rule 60(c)(2)), standard, regular way odd-lot market 
orders will be executed by means of the ``odd-lot system'' at the price 
of the next Exchange round lot sale or will be executed by the member 
organization designated by the Exchange to act as market maker for odd-
lot orders in the subject security at a price deemed appropriate under 
prevailing market conditions. In instances where the quote in a 
security does not meet odd-lot system guidelines, standard, regular way 
odd-lot market orders will be executed by means of the next Exchange 
round lot sale or the next Exchange quote that is within the odd-lot 
system guidelines, whichever occurs first, or will be executed by the 
member organization designated by the Exchange to act as market maker 
for odd-lot orders in the subject security at a price deemed 
appropriate under prevailing market conditions. Guidelines for quotes 
to be utilized in the odd-lot system will be as from time to time 
determined by the Exchange and announced to the membership. A market 
order to sell marked ``short exempt'' shall be executed at the price of 
the adjusted ITS bid at the time the order is received by the ``odd-lot 
system''. All standard odd-lot market orders entered prior to the 
opening of trading will automatically receive the opening price. No 
differential shall be charged on such transactions enumerated in this 
paragraph. These procedures shall apply to orders to buy on the offer 
and orders to sell on the bid marked ``long''.
    A market order to sell marked ``short'' shall be filled at the 
price of the next sale in the round-lot market on the Floor of the 
Exchange following entry of the order which is higher than the last 
different round-lot price.
    Other odd-lot orders, unless otherwise provided under Section B, 
shall be executed in the manner described below. The term ``first 
transaction,'' unless otherwise provided herein, shall be regarded as 
the first round-lot transaction to occur in the security following the 
receipt of the order by the appropriate system. The term effective 
transaction used herein refers to the round-lot transaction on which 
the execution of an odd-lot order shall be based.
    No differential may be charged on any odd-lot order transactions, 
for either market or limit orders, unless otherwise provided in this 
rule.
    All odd-lot orders entered for execution to the ``odd-lot system'' 
shall contain the appropriate account type identification code 
according to specified account type categories in accordance with the 
reporting requirements of Rule 132.

Limited Orders

    (1) Buy Limited Orders. The effective transaction for a limited 
order to buy shall be the first round-lot transaction which is at or 
below the specified limit. The order shall be filled at the price of 
the effective transaction.
    (2) Sell Limited Orders, Marked ``Long.'' The effective transaction 
for a limited order to sell marked ``long'' shall be the first round-
lot transaction which is at or above the specified limit. The order 
shall be filled at the price of the effective transaction.
    (3) Sell Limited Orders, Marked ``Short.'' The effective 
transaction for a limited order to sell marked ``short'' shall be the 
first round-lot transaction which is at or above the specified limit of 
the order, and which is also higher than the last different round-lot 
transaction (a ``plus'' or ``zero-plus'' tick). The order shall be 
filled at the price of the effective transaction.
    (4) Marketable limit orders shall be effected in accordance with 
the above procedures applicable to standard limit orders.]
    [(5)] (g) Limited Order, ``With or Without Sale.'' A limited order 
``With or Without Sale'' shall be filled on an effective round-lot 
transaction, or an effective bid or offer, whichever occurs first after 
the odd-lot broker receives the order. The order shall be filled as 
follows:
    (i) If an effective round-lot transaction occurs first, a buy order 
shall be filled at the price of the effective transaction and a sell 
order shall be filled at the price of the effective transaction.
    (ii) If an effective bid or an effective offer occurs before an 
effective round-lot transaction takes place, a buy order shall be 
filled at the effective offer price and a sell order shall be filled at 
the effective bid price.

[Stop Orders

    (1) Buy Stop Orders. A buy stop order shall become a market order 
when a round-lot transaction takes place at or above the stop price. 
The order shall then be filled at the price of the next transaction.
    (2) Sell Stop Orders, Marked ``Long.'' A sell stop order marked 
``long'' shall become a market order when a round-lot transaction takes 
place at or below the stop price. The order shall then be filled at the 
price of the next transaction.
    (3) Sell Stop Orders, Marked ``Short.'' A sell stop order marked 
``short'' shall become a market order when a round-lot transaction 
takes place at or below the stop price. The order shall then be filled 
at the price of the next transaction, which is higher than the last 
different round-lot price.

Stop Limited Orders

    (1) Buy Stop Limited Orders. A buy stop limited order shall become 
a limited order when a round-lot transaction takes place at or above 
the stop price. The order shall then be filled in the manner prescribed 
for handling a limited order to buy.
    (2) Sell Stop Limited Orders, Marked ``Long.'' A sell stop limited 
order marked ``long'' shall become a limited order when a round-lot 
transaction takes place at or below the stop price. The order shall 
then be filled in the manner prescribed for handling a limited order to 
sell, marked ``long.''
    (3) Sell Stop Limited Orders, Marked ``Short.'' A sell stop limited 
order marked ``short'' shall become a limited order when a round-lot 
transaction takes place at or below the stop price. The order shall 
then be filled in the manner prescribed for handling a limited order to 
sell, marked ``short.'']

[[Page 19892]]

[(B)] (h) Other Types of Orders

Buying on Closing Offer-Selling on Closing Bids
    (1) Buy ``On Close.'' An order to buy ``On Close'' shall be filled 
at the price of the closing round-lot sale.
    (2) Sell ``On Close.'' An order to sell ``On Close'' marked 
``long'' shall be filled at the price of the closing round-lot sell. An 
order to sell ``On Close'' marked ``short'' shall not be accepted.
Discretionary Orders
    A discretionary order must not be accepted by an odd-lot dealer.
Orders for Manual Handling
    A ``seller's option'' trade for delivery within not less than six 
business days nor more than sixty days following the day of the 
contract, an odd-lot order for cash, any orders for additional 
settlement terms as may be provided under Rule 64, and basis price 
orders as discussed below, shall be represented by the specialist and 
executed at a price deemed appropriate in accordance with the terms of 
the orders. A differential may be charged on such orders.
Basis Price Order
    An order may be filled at the ``Basis Price'' provided a Basis 
Price has been established and the order was received at least a half 
hour before the close of the market, and marked ``On Basis''. ``On 
Basis'' market orders and ``On Basis'' limited price orders for which 
the Basis Price is effective shall be filled as follows.
    (1) Buy Order. A buy order marked ``Basis Price'' shall be filled 
at the Basis Price plus any differential.
    (2) Sell Order. A sell order marked ``long'' and marked ``Basis 
Price'' shall be filled at the Basis Price minus any differential. A 
sell order marked ``short'' may not be filled at the Basis Price.
    (See Rule 124.10 for establishment of Basis Prices).
Supplementary Material
    .10 Basis Prices.--Basis Prices shall be established by joint 
agreement of odd-lot dealers in 100-share unit stocks where there has 
been no round-lot sale during the trading session, the spread between 
the closing bid and offer prices is two points or more and an odd-lot 
dealer has been given an ``On Basis'' order. The Basis Price must be 
reviewed and approved by a Floor Official.
    .20 ``Delayed Sale,'' ``Sold Sale.''--When a ``delayed sale'' or 
``sold sale'' occurs (printed on the ticker tape followed by the symbol 
``sold''), the odd-lot dealers shall make every effort to ascertain the 
approximate time the transaction took place. If there is some doubt as 
to whether or not this transaction in any way affects the execution of 
an odd-lot order, the firm that entered the order should be notified, 
informed of the circumstances, and given the opportunity to accept or 
reject a report based on the transaction.
    .30 Sales Not Printed on the Tape.--The customer of the odd-lot 
dealer must accept a report based on a sale which took place on the 
Floor, but which, through error, was not printed on the tape, if the 
odd-lot dealer filled and reported the customer's order at the time the 
sale occurred.
    If the odd-lot dealer failed to fill the order at the time the sale 
occurred the customer should be offered the choice of accepting or 
refusing a report based on that sale.
    .40 Orders to Be Reduced on Ex-Date.--Open buy limited orders and 
open stop orders to sell held by an odd-lot dealer prior to the day a 
stock sells ex-dividend, ex-distribution or ex-rights shall be handled 
in accordance with the procedures set forth in Rule 118 and the 
provisions in Rule 118.10, .20 and .21 in the Supplementary Material 
thereto.
    .50 The odd-lot portion of PRL (part of round lot) orders will be 
executed at the same price as the round lot portion and will be 
processed through the round lot system.
    .60 For the purposes of paragraph [(A)](b) of this Rule, the term 
``adjusted ITS bid'' and ``adjusted ITS offer'' for a stock shall mean 
the highest bid and lowest offer, respectively, disseminated (i) by the 
Exchange or (ii) by another market center participating in the 
``Intermarket Trading System,'' as that term is defined in Rule 15 
(``ITS and Pre-Opening Applications''); provided, however, that the bid 
and offer in another ITS market center will be considered in 
determining the adjusted ITS bid and adjusted ITS offer in a stock only 
if (A) the stock is included in ITS in that market center, (B) the size 
of the quotation is greater than 100 shares, (C) the bid or offer is no 
more than one-quarter dollar away from the bid or offer, respectively, 
disseminated by the Exchange, (D) the quotation conforms to the 
requirements of Rule 62 (``Variations''), (E) the quotation does not 
result in a locked market, as the term is defined in Rule 15A (``ITS 
Trade-Throughs and Locked Markets''), (F) the market center is not 
experiencing operational or system problems with respect to the 
dissemination of quotation information, and (G) the bid or offer is 
``firm,'' that is, members of the market center disseminating the bid 
or offer are not relieved of their obligations with respect to such bid 
or offer under paragraph (c)(2) of Rule 11Ac1-1 pursuant to the ``usual 
market'' exception of paragraph (b)(3) of Rule 11Ac1-1.
    .70 In instances in which quotation information is not available, 
e.g., the quotation collection or dissemination facilities are 
inoperable, or the market in a security has been determined to be in a 
``non-firm mode'' (as defined in Rule 60(c)(2)), standard, regular way 
odd-lot market orders will be executed by means of the odd-lot System 
at the price of the next Exchange round lot sale or will be executed by 
the specialist in the subject security at a price deemed appropriate 
under prevailing market conditions. In instances where the quote in a 
security does not meet odd-lot system guidelines, standard, regular way 
odd-lot market orders will be executed by means of the next Exchange 
round lot sale or the next Exchange quote that is within the odd-lot 
system guidelines, whichever occurs first, or will be executed by the 
specialist in the subject security at a price deemed appropriate under 
prevailing market conditions. Guidelines for quotes to be utilized in 
the odd-lot system will be as from time to time determined by the 
Exchange and announced to the 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 
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
    Odd-lot orders are orders for a size less than the standard unit 
(round-lot) of trading, which is 100 shares for most stocks, although 
some stocks trade in 10 share units. Currently, odd-lot orders do not 
enter the Exchange's auction market, but are executed systemically, 
with the specialist being assigned as the contra-party in all cases. 
Odd-lot market orders to buy (sell) are generally executed at the price 
of the adjusted ITS round-lot

[[Page 19893]]

offer (bid) \4\ at the time the Exchange's system receives the order. 
Odd-lot limit orders are generally executed at the price of the first 
round-lot transaction, subsequent to the receipt of the order by the 
system, that is at or better than the limit price on the order.
---------------------------------------------------------------------------

    \4\ ``Adjusted ITS bid'' and ``adjusted ITS offer'' are defined 
in NYSE Rule 124.60.
---------------------------------------------------------------------------

    Specialists are not informed as to the amount of odd-lot shares 
that they are acquiring or selling at the time of execution in the odd-
lot system. In some instances, a significant number of shares can be 
acquired by or sold before the specialist is alerted to the position 
change. When the odd-lot orders consist primarily of limit orders, the 
triggering round-lot trade could be for as little as 100 shares, yet it 
could have a significant impact on the specialist's market-making 
position.
    Recently, new odd-lot trading strategies \5\ have emerged which 
have resulted in specialists having to assume large positions of 
aggregated odd-lot orders at prices that are not necessarily reflective 
of the prices such orders would have received had they been executed 
pursuant to the supply/demand dynamics of the round-lot auction market. 
For example, a round-lot trade as small as 100 shares may result in the 
specialist having to assume a position of thousands of shares in odd-
lot orders entered in furtherance of professional trading strategies. 
According to the Exchange, this results in increased, significant 
financial risk to specialists, as the odd-lot system was established as 
a service for very small retail investor orders.
---------------------------------------------------------------------------

    \5\ The Exchange has identified and advised its membership that 
certain types of trading strategies are not valid for use with odd-
lot orders. These include unbundling round-lot orders, failure to 
aggregate odd-lot orders into round-lots, entry of both buy and sell 
odd-lot limit orders for purposes of capturing the spread in a 
stock, index arbitrage and other patterns of activity that suggest 
day-trading. See NYSE Information Memos Nos. 91-29 (July 25, 1991), 
94-14 (April 18, 1994), and 04-14 (March 19, 2004). The Exchange 
takes regulatory action where appropriate with respect to such 
trading practices.
---------------------------------------------------------------------------

    The Exchange believes that the most appropriate way to execute odd-
lot orders, ultimately, is to represent them in the round-lot auction 
market, where they will interact with all other market interest, and be 
priced in accordance with supply/demand dynamics. In addition, odd-lot 
volume would be reported to the Consolidated Tape, resulting in 
``sunlight'' with respect to this market activity, which is not 
currently reported anywhere.
    However, representing odd-lot orders in the round-lot market will 
require technical changes to a number of Exchange systems, and cannot 
be implemented in the near term. As an interim measure, the Exchange is 
proposing to change the way odd-lot orders are priced and executed 
systemically. Under the proposal, odd-lot orders would be priced and 
executed at the price of subsequent round-lot transactions, and in 
proportion to round-lot volume, as follows:
    a. Market Orders. Odd-lot market orders would be executed in time 
priority at the price of the next round-lot transaction. Buy and sell 
orders would, in essence, be netted against one another and executed 
(the specialist is technically the contra party to the buy orders and 
to the sell orders, but since the specialist is buying the same amount 
that he or she is selling, there is no economic consequence to the 
specialist in this type of pairing-off of orders). Any imbalance of buy 
or sell orders would be executed against the specialist, but only up to 
the size of the round-lot transaction. Any market orders that do not 
receive an execution because of the volume limitation would be 
executed, in time priority order, at the price of the next round-lot 
transaction, again subject to the volume limitation. There would be a 
``timer'' provision in the rule to provide that an order not executed 
within 30 seconds would be executed at the price of the adjusted ITS 
best round-lot bid (in the case of a sell order) or offer (in the case 
of a buy order).
    Example: Assume that there are 6,000 shares of odd-lot market 
orders to buy and 4,000 shares of odd-lot market orders to sell. A 
round-lot transaction takes place at a price of $20 for 1,000 shares. 
Buy orders up to 4,000 shares, in time priority will be netted against 
the 4,000 shares of sell orders, and these orders will be executed at a 
price of $20. The next 1,000 shares of buy orders, in time priority, 
will be executed against the specialist at a price of $20. The 
remaining 1,000 shares of buy market orders will be executed at the 
price of the next round-lot transaction, subject to the volume 
limitation of such next transaction. However, any market orders that 
are not executed within 30 seconds after they are entered will be 
systemically executed against the specialist at the adjusted ITS best 
bid or offer price in existence at that time.
    b. Limit Orders. Odd-lot limit orders will be executed at the price 
of the first round-lot transaction that is at or better than the limit 
price of the order, subject to the volume limitation of the round-lot 
transaction. Odd-lot limit orders will be aggregated with odd-lot 
market orders for purposes of the volume limitation. Limit orders 
eligible for execution would be intermingled with market orders for 
purposes of determining time priority, and buy and sell orders could be 
netted in the same fashion as market orders. As with odd-lot market 
orders, odd-lot limit orders which would otherwise receive a partial 
execution will be executed in full. There is no ``timer'' for odd-lot 
limit orders.
    Example: Assume that a customer enters an odd-lot limit order to 
buy 50 shares at a price of $20. A round-lot transaction takes place at 
a price of $20 for 1,000 shares, but 1,000 shares of odd-lot market 
orders had time priority and are executed at a price of $20 against the 
specialist. The odd-lot limit order will continue to reside in the odd-
lot system and retain its time priority for execution after a 
subsequent round-lot transaction that is at or better than the limit 
price of the odd-lot order.
    The Exchange believes that the method of pricing for odd-lot orders 
being proposed in the interim program, i.e., using the next sale price, 
offers these orders the possibility of price improvement, whereas using 
the quotation does not. In addition, the proposed method of pricing is 
consistent with the Exchange's ultimate approach of integrating odd-
lots in the round-lot auction market, in which orders are executed in, 
and at the prices of, transactions effected subsequent to the entry of 
the orders.\6\
---------------------------------------------------------------------------

    \6\ The Commission notes that such an approach would be subject 
to a rule change filing under section 19(b) of the Act.
---------------------------------------------------------------------------

    Odd-lot sell orders which are short sales will be executed as 
follows. A short sale market odd-lot order will be eligible for 
execution at the price of the next sale in the round-lot market on the 
Exchange which is higher than the last different round-lot transaction. 
Short sale limit odd-lot orders will be eligible for execution at the 
price of the first round-lot transaction on the Exchange which is at or 
above the specified limit of the order, and which is also higher than 
the last different round-lot transaction.
    Stop orders in odd-lots will be handled as they are today. The odd-
lot portion of part round-lot orders will continue to be executed at 
the same price as the price of the first round-lot portion of the 
order. Procedures in use today regarding execution of odd-lot orders 
when Exchange quotes are not available, are non-firm, or do not meet 
system validations, are also being retained in the amended rule.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is

[[Page 19894]]

consistent with section 6(b) of the Act,\7\ in general, and further the 
objectives of section 6(b)(5),\8\ 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 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

    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 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-2003-37. 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-2003-37 and should be 
submitted by May 5, 2004.

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

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

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-8446 Filed 4-13-04; 8:45 am]
BILLING CODE 8010-01-P