[Federal Register Volume 69, Number 157 (Monday, August 16, 2004)]
[Notices]
[Pages 50407-50419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18638]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50173; SR-NYSE-2004-05]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc. 
Relating to Enhancements to the Exchange's Existing Automatic Execution 
Facility (NYSE Direct+)

August 10, 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 9, 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 NYSE. On August 2, 
2004, the NYSE filed 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.
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    \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 
(``Division''), Commission, dated July 30, 2004, and accompanying 
Form 19b-4, which replaces the original filing in its entirety 
(``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to create a hybrid market, where investors 
would be able to choose how their orders are executed. Investors 
seeking the speed and certainty of an automatic execution, as well as 
investors who prefer the opportunity for price improvement provided by 
an auction market, would both be able to obtain executions in 
accordance with their preferences on the NYSE. This would be 
accomplished by, among other things, enhancements to the Exchange's 
existing automatic execution facility, NYSE Direct+[reg] 
(``Direct+''), making its speed 1 and execution certainty available to 
a wider variety of orders. The Exchange also proposes to create a new 
order type--an Auction Limit (``AL'') order--and to modify the way 
market orders would be handled in the auction market, providing an 
opportunity for price improvement for those who desire it. The proposed 
amendments also address ``sweeps,'' ``locked'' and ``crossed'' markets, 
and ``trade-throughs'' and seek to make Direct+, currently a pilot 
program, permanent.\4\
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    \4\ The Exchange states that the proposed amendments reflect 
significant changes to the structure of the Exchange's market. As 
such, there have been numerous valuable discussions between the 
Exchange with Exchange customers, members, and member organizations 
concerning the concepts underlying these proposals. As the Exchange 
continues to evaluate and refine these proposals, the Exchange 
represents that it will continue to reach out to its constituents 
for their input and analysis and will make appropriate amendments as 
necessary.
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    Below is the text of the proposed rule change, as amended. Proposed 
new

[[Page 50408]]

language is italicized; proposed deletions are in brackets.
* * * * *

Definitions of Orders

Rule 13

* * * * *
Auction Limit Order
    An auction limit order is an order that provides an opportunity for 
price improvement.
    The limit price of an auction limit order to buy should be at or 
above the Exchange best offer at the time the order is entered on the 
Exchange. The limit price of an auction limit order to sell should be 
at or below the Exchange best bid at the time the offer is entered on 
the Exchange.
    An auction limit order shall be quoted and executed in accordance 
with Exchange Rules 60(h) and 79A.15.
Auto Ex Order
    An auto ex order is an order in a stock, Investment Company Unit 
(as defined by paragraph 703.16 of the Listed Company Manual), Trust 
Issued Receipt (as defined in Rule 1200), or a commitment to trade 
received on the Floor through ITS subject to [limit order of 1099 
shares or less priced at or above the Exchange's published offer (in 
the case of an order to buy) or at or below the Exchange's published 
bid (in the case of an order to sell), which a member or member 
organization has entered for] automatic execution in accordance with, 
and to the extent provided by, Exchange Rules 1000-1004[5].
    [Pursuant to a pilot program to run until December 23, 2004, orders 
in Investment Company Units (as defined in paragraph 703.16 of the 
Listed Company Manual), or Trust Issued Receipts (as defined in Rule 
1200) may be entered as limit orders in an amount greater than 1099 
shares. The pilot program shall provide for a gradual, phased-in 
raising of order size eligibility, up to a maximum of 10,000 shares. 
Each raising of order size eligibility shall be preceded by a minimum 
of a one-week advance notice to the Exchange's membership.]
* * * * *
Immediate or Cancel Order
    A market or limited price order [which] designated immediate or 
cancel is to be executed [in whole or in part] to the extent possible 
as soon as such order is represented in the Trading Crowd or to be 
automatically executed in accordance with, and to the extent provided 
by, Exchange Rules 1000-1004 and the portion not so executed is to be 
treated as cancelled. For the purposes of this definition, a ``stop'' 
is considered an execution.
    A ``commitment to trade'' received on the Floor through ITS is an 
auto ex order and shall be treated in the same manner, and entitled to 
the same privileges, as [would] an immediate or cancel order that 
[reaches the Floor] is routed to the book at the same time except as 
otherwise provided in the Plan and except further that such a 
commitment may not be ``stopped.'' [and the commitment shall remain 
irrevocable for the time period chosen by the sender of the 
commitment.] After trading with the Exchange published bid (offer), the 
unfilled balance of a commitment to trade shall be automatically 
cancelled.
Limit, Limited Order or Limited Price Order
    An order to buy or sell a stated amount of a security at a 
specified price, or at a better price, if obtainable after the order is 
represented in the Trading Crowd.
    A marketable limit order is an order that can be immediately 
executed; that is an order to buy priced at or above the Exchange best 
offer or an order to sell priced at or below the Exchange best bid.
    A marketable limit order routed to the book is an auto ex order 
subject to automatic execution in accordance with, and to the extent 
provided by, Exchange Rules 1000-1004.
Market Order
    An order to buy or sell a stated amount of a security at the most 
advantageous price obtainable after the order is represented in the 
Trading Crowd or routed to the book as an auto ex order for execution 
in accordance with, and to the extent provided by, Exchange Rules 1000-
1004.
    A market order not designated auto ex shall be quoted and executed 
in accordance with Exchange Rules 60(i) and 79A.15.
* * * * *
    (Reminder of rule unchanged)

ITS ``Trade-Throughs'' and ``Locked Markets''

Rule 15A

* * * * *
Supplementary Material
    .10 Nothing in paragraph (d)(2)(B) above is intended to discourage 
a locking member from electing to ship if the complaint requests him to 
do so.
    .20 The fact that a transaction may be cancelled or the price 
thereof may be adjusted pursuant to the provisions of paragraph (b)(2) 
of this Rule 15A, shall not have any effect, under the rules, on other 
transactions or the execution of orders not involved in the original 
transaction.
    .30 The provisions of this Rule 15A shall supersede the provisions 
of any other Exchange Rule which might be construed as being 
inconsistent with Rule 15A.
    .40 For the purposes of this Rule:
    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) 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.
    .50 Where the national best bid or offered is published by another 
market center in which an automated execution is immediately available 
or such bid or offer is otherwise protected from a trade-through by 
Securities and Exchange Commission rule or ITS Plan, and the specialist 
has not systemically matched the price associated with such better bid 
or offer, the Exchange will automatically rout as a commitment to trade 
the portion of any market, auto ex market, auction limit or marketable 
limit order routed to the book that satisfies such better bid or offer, 
unless the entity entering the order indicated that it was 
contemporaneously satisfying the better bid or offer.
* * * * *

Dissemination of Quotations

Rule 60

* * * * *
    (e) Autoquoting of highest bid/lowest offer and automated 
adjustment of size of liquidity bid and offer. The Exchange will 
autoquote the NYSE's highest bid or lowest offer whenever a limit order 
is transmitted to the specialist's book at a price higher (lower) than 
the previously disseminated highest (lowest) bid (offer). When the 
NYSE's highest bid or lowest offer has been traded with in its 
entirety, the Exchange will autoquote a new bid or offer

[[Page 50409]]

reflecting the total size of orders on the specialist's book at the 
next highest (in the case of a bid) or lowest (in the case of an offer) 
price. The size of any liquidity bid or offer shall be systemically 
increased to reflect any additional limit orders transmitted to the 
specialist's book at prices ranging from the liquidity bid or offer 
price to the highest bid (lowest offer). The size of any liquidity bid 
or offer shall be systematically decreased to reflect the execution of 
any limit orders on the specialist's book at prices ranging from the 
liquidity bid or offer price to the highest bid (lowest offer). 
However, de minimis increases or decreases in the size of limit orders 
on the book, as determined by the specialist, will not result in 
automated augmenting or decrementing of the size of the liquidity bid 
or offer where such bid or offer continues to reflect the actual size 
of limit orders on the book.
    [In any instance where the specialist disseminates a proprietary 
bid (offer) of 100 shares on one side of the market, the bid or offer 
on that side of the market shall not be autoquoted. In such an 
instance, any better-priced limit orders received by the specialist 
shall be manually displayed, unless they are executed at a better price 
in a transaction being put together in the auction market at the time 
that the order is received.]
    Autoquote will not be available when the specialist has gapped the 
quotation in accordance with Exchange policies and procedures, when a 
liquidity replenishment point (``LRP'') has been reached, or during the 
time a report of a transaction is being made through the book.
    After the specialist has gapped the quotation, autoquote will 
resume with a manual transaction or the publication of a non-gapped 
quotation.
    Autoquote will resume as soon as possible after a LRP has been 
reached, but in no more than five seconds where the auto ex order that 
reached the LRP is executed in full, or any unfilled balance of such 
order is not capable of trading at a price above (in the case of a buy 
order) or below (in the case of a sell order) the LRP. Where the 
unfilled balance can trade at a price above (below) the LRP, but does 
not create a locked or crossed market, autoquote will resume upon a 
manual transaction or the publication of a new quote by the specialist, 
but in any event in no more than 28 seconds. Where the unfilled balance 
can trade at a price above (below) the LRP and creates a locked or 
crossed market, autoquote will resume upon a manual transaction or the 
publication of a new quote by the specialist.
    (f) In addition to meeting its obligations as set forth in 
paragraph (b) of SEC Rule 11Ac1-1 as applicable to the Exchange under 
this Rule 60, the Exchange shall make available to quotation vendors 
and shall communicate to other specified persons the appropriate mode 
identifier in effect as to each reported security which shall, in the 
case of the initiation and termination of non-firm modes, effect the 
requisite notification and re-notification of specified persons under 
subparagraph (b)(3) of SEC Rule 11Ac1-1.
    (g)(1) Each specialist shall promptly report in each reported 
security in which he is registered the highest bid and lowest offer 
made in the trading crowd in such security and the associated quotation 
size that he wishes to make available to quotation vendors.
    (2) Each specialist who is a responsible broker or dealer on the 
Floor shall:
    (i) promptly report as to the reported security whenever a bid, 
offer or quotation size he previously reported is to be revised; and
    (ii) promptly report as to the reported security whenever a bid 
and/or offer he previously reported is to be cancelled or withdrawn.
    (h) Auction Limit Orders
    (1) If not executed upon entry, an auction limit order to buy that 
is marketable when it reaches the book shall be quoted the minimum 
variation better than the Exchange best bid and an auction limit order 
to sell that is marketable when it reaches the book shall be quoted the 
minimum variation better than the Exchange best offer.
    (2) Auction limit orders shall be executed pursuant to Exchange 
auction market procedures, except that a subsequent order on the same 
side of the market capable of trading at a price better than the 
auction limit order is bidding (offering) an order on the same side, 
that exhausts some or all of the contra-side volume available in the 
Exchange quotation, a change in the price of the contra-side of the 
quotation that would enable an execution of the auction limit order 
with price improvement, or a quote at the minimum variation shall cause 
the auction limit order to be automatically executed in accordance 
with, and to the extent provided by, Exchange Rules 1000-1004.
    (3) An auction limit order that has not been executed within 15 
seconds after it reaches the book shall be automatically executed in 
accordance with, and to the extent provided by, Exchange Rules 1000-
1004.
    (4) An auction limit order may be executed at a price inferior to 
the market prevailing at the time it was entered.
    (5) An auction limit order that becomes non-marketable before 
executed in whole or in part shall be quoted at its limit price.
    (i) Market Orders
    (1) If not executed upon entry, a market order to buy shall be 
quoted the minimum variation better than the Exchange best bid and a 
market order to sell shall be quoted the minimum variation better than 
the Exchange best offer.
    (2) Market orders shall be executed pursuant to Exchange auction 
market procedures, except that a subsequent order on the same side of 
the market capable of trading at a better price than the market order 
is bidding (offering), a change in the price of the contra-side of the 
quotation that would enable an execution of the market order with price 
improvement, or a quote at the minimum variation shall cause the market 
order to be automatically executed in accordance with, and to the 
extent provided by, Exchange Rules 1000-1004.
    (3) A market order that has not been executed within 15 seconds 
shall be automatically executed in accordance with, and to the extent 
provided by, Exchange Rules 1000-1004.
    (4) A market order may be executed at a price inferior to the 
market prevailing at the time it was entered.
* * * * *

[Below Best] Bids [-] and [Above Best] Offers

Rule 70

    [When a bid is clearly established, no bid or offer at a lower 
price shall be made. When an offer is clearly established, no offer or 
bid at a higher price shall be made.]
    All bids made and accepted, and all offers made and accepted, in 
accordance with Exchange Rules [45 to 86] shall be binding.
Supplementary Material
    .10 Any bid (offer) routed to the book which is made at the same or 
higher (lower) price of the prevailing offer (bid) shall result in an 
automatic execution [transaction at the offer price in an amount equal 
to the lesser of the bid or offer. The same principle shall apply when 
an offer is made at the same or lower price as the bid.] in accordance 
with, and to the extent provided by, Exchange Rules 1000-1004.

[[Page 50410]]

    .20 (a) A Floor broker may place within the Display Book system a 
broker agency interest file at varying prices at or outside the 
Exchange best bid and offer with respect to orders he or she is 
representing on the Floor, except that the agency interest file shall 
not include any ``G'' order interest.
    (b) A Floor broker's agency interest shall become part of the 
quotation when it is at the Exchange best bid or offer and shall be 
executed in accordance with Exchange Rule 72.
    (c) A Floor broker's agency interest not at the Exchange best bid 
or offer shall be on parity with displayed orders if executed as part 
of a sweep in accordance with, and to the extent provided by, Exchange 
Rules 1000-1004.
    (d) A Floor broker may place agency interest in only one Crowd, as 
determined by the Exchange, at any given time. If the Floor broker 
wants to trade on behalf of his or her orders as part of the Crowd at 
the same price and on the same side of the market as his or her agency 
interest file, the Floor broker must add to the size of the agency 
interest file at that price or cancel that portion of the agency 
interest file before trading verbally in the Crowd.
    (e) A Floor broker's agency interest file must be cancelled when he 
or she leaves the Crowd. Failure to do so is a violation of Exchange 
rules. If the Floor broker leaves the Crowd without cancelling his or 
her agency interest file and one or more executions occur with the 
agency interest, the Floor broker shall be held to such executions.
    (f) Nothing in this rule shall be interpreted as modifying or 
relieving the Floor broker from his or her agency obligations and 
required compliance with all Exchange rules, policies and procedures.
* * * * *

Miscellaneous Requirements on Stock and Bond Market Procedures

Rule 79A

Supplementary Material
    .10 Request to make better bid or offer.--When any Floor broker 
does not bid or offer at the limit of an order which is better than the 
currently quoted price in the security and is requested by his 
principal to bid or offer at such limit, he shall do so.
    .15 With respect to limit orders received by specialists, each 
specialist shall publish immediately (i.e., as soon as practicable, 
which under normal market conditions means no later than 30 seconds 
from time of receipt) a bid or offer that reflects;
    (i) the price and full size of each customer limit order that is at 
a price that would improve the specialist's bid or offer in such 
security; and
    (ii) the full size of each limit order that
    (A) is priced equal to the specialist's bid or offer for such 
security;
    (B) is priced equal to the national best bid or offer; and
    (C) represents more than a de minimis change (i.e., more than 10 
percent) in relation to the size associated with the Exchange's bid or 
offer.
    [Each specialist shall keep active at all times the quotation 
processing facilities (known as ``Quote Assist'') provided by the 
Exchange. A specialist may deactivate the quotation processing 
facilities as to a stock or a group of stocks provided that Floor 
Official approval is obtained. Such approval to deactivate Quote Assist 
must be obtained no later than three minutes from the time of 
deactivation.]
    Limit orders received by the specialist that improve the Exchange 
then-current bid or offer or change the size of the Exchange bid or 
offer, other than de minimis increases or decreases, shall be 
autoquoted in accordance with Exchange Rule 60(e). Each specialist 
shall activate the autoquote facility provided by the Exchange in each 
specialty stock he or she is responsible for by initiating a liquidity 
quote or by such other means as the Exchange may from time to time 
disseminate. Each specialist shall keep active at all times the 
autoquote facility provided by the Exchange, except that a specialist 
may deactivate the autoquote facility in order to accommodate gap 
quoting in accordance with the policies and procedures of the Exchange.
    The requirements with respect to specialists' display of limit 
orders shall not apply to any customer limit order that is[;]:
    (1) executed upon receipt of the order;
    (2) placed by a customer who expressly requests, either at the time 
the order is placed or prior thereto pursuant to an individually 
negotiated agreement with respect to such customer's orders, that the 
order not be displayed;
    (3) an odd-lot order;
    (4) delivered immediately upon receipt to an exchange or 
association-sponsored system or an electronic communications network 
that complies with the requirements of Securities and Exchange 
Commission Rule 11Ac1-1(c)(5)(ii) under the Securities Exchange Act 
with respect to that order;
    (5) delivered immediately upon receipt to another exchange member 
or over-the-counter market maker that complies with the requirements of 
Securities and Exchange Commission Rule 11Ac1-4 under the Securities 
Exchange Act with respect to that order;
    (6) an ``all or none'' order;
    (7) a limit order to buy at a price significantly above the current 
offer or a limit order to sell at a price significantly below the 
current bid that is handled in compliance with Exchange procedures 
regarding such orders, (``too marketable limit orders''; [or]
    (8) an order that is handled in compliance with Exchange procedures 
regarding block crosses at significant premiums or discounts from the 
last sale[.];
    (9) an auction limit order;
    (10) part of a broker agency interest file not at the Exchange best 
bid or offer; or
    (11) the residual of an automatically executed order remaining 
after a liquidity replenishment point (``LRP'') has been reached, where 
such order is capable of trading at a price above (in the case of a buy 
order) or below (in the case of a sell order) the LRP price and such 
price creates a locked or crossed market on the Exchange.
* * * * *
    (Reminder of rule unchanged)

Dealings by Specialists

Rule 104

* * * * *
    (c) Specialists shall have the ability to implement proprietary 
algorithms that allow them, on behalf of the dealer account, to 
systematically supplement the Exchange published bid or offer, match 
bids and offers published by other market centers, and place within the 
Display Book system a specialist interest file at varying prices 
outside the published Exchange quotation. The specialist interest file 
may not participate in a transaction at a price at or between the 
Exchange published quotation, except that the specialist interest file 
may provide stock to facilitate a single-price execution at the bid 
(offer) price, provided that the specialist purchase (sell) all of the 
remaining volume on the order being facilitated.
    (b) Nothing in this rule shall be interpreted as modifying or 
relieving the specialist from his or her obligations and required 
compliance with all Exchange rules, policies and procedures.
* * * * *
    (Reminder of rule unchanged)

[[Page 50411]]

Orders of Members To Be in Writing

Rule 117

    No member on the Floor shall make any bid, offer or transaction for 
or on behalf of another member except pursuant to a written or 
electronically recorded order. If a member to whom an order has been 
entrusted leaves the Crowd without actually transferring the order to 
another member, the order shall not be represented in the market during 
his or her absence, except with respect to any portion of his or her 
agency interest file that was not cancelled before the member left the 
Crowd, notwithstanding that such failure to cancel an agency interest 
file is a violation of Exchange rules.
Supplementary Material
    .10 Absence from Crowd.--When a member keeps an order in his or her 
possession and leaves the Crowd in which dealings in the security are 
conducted, the member is not entitled during his or her absence to have 
any bid, offer or transaction made in such security on his or her 
behalf or to have dealings in the security held up until he or she is 
summoned to the Crowd, except that the member shall be held to any 
executions involving his or her agency interest file. To insure 
representation of an order in the market during his or her absence, a 
member must therefore actually turn the order over to another member 
who will undertake to remain in the Crowd. If a member keeps the order 
in his or her possession and during his or her absence from the Crowd 
the security sells at or through the limit of his or her order, the 
member will be deemed to have missed the market.
* * * * *
    (Reminder of rule unchanged)

Record of Orders

Rule 123

* * * * *
(e) System Entry Required
    Except as provided in paragraph .21 and .22 below, no Floor member 
may represent or execute an order on the Floor of the Exchange or place 
an interest file within the Display Book system unless the details of 
the order have been first recorded in an electronic system on the 
Floor. Any member organization proprietary system used to record the 
details of the order must be capable of transmitting these details to a 
designated Exchange database within such time frame as the Exchange may 
prescribe. The details of each order required to be recorded shall 
include the following data elements, any changes in the terms of the 
order and cancellations, in such form as the Exchange may from time to 
time prescribe:

1. Symbol;
2. Clearing member organization;
3. Order identifier that uniquely identifies the order;
4. Identification of member or member organization recording order 
details;
5. Number of shares or quantity of security;
6. Side of market;
7. Designation as market, limit, stop, stop limit; auction limit;
8. Any limit price and/or stop price;
9. Time in force;
10. Designation as held or not held;
11. Any special conditions;
12. System-generated time of recording order details, modification of 
terms of order or cancellation of order;
13. Such other information as the Exchange may from time to time 
require.
* * * * *

Miscellaneous Requirements

Rule 123A

* * * * *
    .30 A specialist may accept one or more percentage orders.--
* * * * *
    (a) The elected or converted portion of a percentage order that is 
convertible on a destabilizing tick and designated ``immediate 
execution or cancel election'' (``CAP-DI order'') may be automatically 
executed and may participate in a sweep.
    (i) An elected or converted CAP-DI order on the same side of the 
market as an automatically executed electing order may participate in a 
transaction at the bid (offer) price if there is volume associated with 
the bid (offer) remaining after the electing order is filled in its 
entirety. An elected or converted CAP-DI order on the same side of the 
market as an automatically executed electing order that sweeps the book 
will participate in a transaction at the sweep clean up price if there 
is volume remaining on the book or from contra-side elected CAP DI 
orders at that price.
    (ii) An elected and converted CAP-DI order on the contra-side of 
the market as an automatically executed electing order may participate 
in a transaction at the bid (offer) price and the sweep clean up price, 
if any.
* * * * *
    (Reminder of rule unchanged)

NYSE Direct+[supreg]

Rule 1000

    (a) [Only straight limit orders without tick restrictions are 
eligible for entry as auto ex orders. Auto ex orders to buy shall be 
priced at or above the price of the published NYSE offer. Auto ex 
orders to sell shall be priced at or below the price of the NYSE bid.] 
An auto ex order shall receive an immediate, automatic execution 
against orders reflected in the Exchange['s] published quotation, 
orders on the book, Floor broker agency interest file and specialist 
interest file, in accordance with, and to the extent provided by, 
Exchange Rules 1000-1004 and shall be immediately reported as [NYSE] 
Exchange transactions, unless:
    (i) The [NYSE] Exchange published quotation is in the non-firm 
quote mode;
    (ii) the execution price would be more than [five cents] a 
specified price away from the last reported transaction price in the 
subject security on the Exchange; as the Exchange shall from time to 
time determine and disseminate.
    (iii) with respect to a single-sided auto ex order, a better price 
exists in another ITS participating market center where an automatic 
execution is immediately available or where such better price is 
otherwise protected from a trade-through by Securities and Exchange 
Commission rule or ITS Plan;
    [(iv)with respect to a single-sided auto ex order, the NYSE 
published bid or offer is 100 shares;]
    [(v)] (iv) a transaction outside the [NYSE] Exchange published bid 
or offer pursuant to Rule 127 is in the process of being completed, in 
which case the specialist should publish a bid and/or offer that is 
more than [five cents] a specified price away from the last reported 
transaction price in the subject security [on the Exchange];
    [(v)] (v) trading in the subject security has been halted;
    (vi) the specialist has gapped the quotation in accordance with the 
policies and procedures of the Exchange;
    (vii) a liquidity replenishment point has been reached. A liquidity 
replenishment point is reached when:
    (A) the execution price of an auto ex order would be above (below) 
a specified price on the Exchange as the Exchange shall from time to 
time determine and disseminate, or
    (B) a specified price movement on the Exchange has occurred over a 
specified period of time, as the Exchange shall from time to time 
determine and disseminate.
    (b)(i) Auto ex orders to buy shall trade with the Exchange 
published best offer. Auto ex orders to sell shall trade with the 
Exchange published best bid. After trading with the bid (offer), the 
unfilled balance of any commitment to trade

[[Page 50412]]

received on the Floor through ITS shall be automatically cancelled.
    (ii) Where the volume associated with the Exchange published best 
bid (offer) is insufficient to fill an auto ex order in its entirety, 
other than a commitment to trade received on the Floor through ITS, the 
unfilled balance of such order (the ``residual'') shall ``sweep'' the 
book--trade with orders on the book and any broker agency interest file 
and specialist interest file until it is executed in full, its limit 
price if any is reached, or a liquidity replenishment point is reached, 
whichever occurs first.
    (iii) The residual shall trade with the orders on the book and any 
broker agency interest file and specialist interest file at a single 
price, such price being the best price at which such orders and files 
can trade with the residual to the extent possible, or a liquidity 
replenishment point, whichever comes first (``clean up price''). All 
orders on the book and Floor broker agency interest trading with the 
residual shall be on parity and receive the clean up price. If no 
orders capable of trading at the clean up price remain on the book, 
specialist interest may trade on parity with broker agency interest at 
that price.
    (iv) The sweep described in (ii) above is not available during the 
period a report of a transaction is being made in the book and the 
volume of the bid (offer) has decremented to 100 shares.
    (v) Any residual remaining after the sweep described in (ii) above 
shall be executed pursuant to Exchange auction market procedures unless 
the order is designated immediate or cancel, in which case the residual 
shall be automatically cancelled.
    [An auto ex limit order that cannot be immediately executed shall 
be displayed as a limit order in the auction market. An a auto ex 
orders equal to or greater than the size of the NYSE published bid or 
offer shall trade against the entire published bid or offer, and a new 
bid or offer shall be published pursuant to Rule 60(e). The unfilled 
balance of the auto ex order shall be displayed as a limit order in the 
auction market.]
    [During a pilot program in 2003, NYSE Direct+ shall not be 
available in the following five stocks: American Express (AXP), Pfizer 
(PFE), International Business Machines (IBM), Goldman Sachs (GS), and 
Citigroup (C). The Exchange will announce in advance to its membership 
the time the pilot will run.]
* * * * *

Rule 1001

    (a) Subject to Rule 1000, auto ex orders shall be executed 
automatically and immediately reported. The contra side of the 
execution shall be [orders reflected in the Exchange's published 
quotation], as follows:
    (i) the first contra side bid or offer at a particular price shall 
be entitled to time priority, but after a trade clears the Floor, all 
bids and offers at such price shall be on parity with each other;
    (ii) all bids or offers on parity shall receive a split of 
executions in accordance with Exchange Rule 72;
    (iii) the [specialist shall be responsible for assigning] 
assignment of the number of shares to each contra side bidder and 
offeror, as appropriate, in accordance with Exchange Rule 72, with 
respect to each automatic execution of an auto ex order shall be done 
systemically;
    (iv) the specialist shall be the contra party to any automatic 
execution of an auto ex order where interest reflected in the Exchange 
published quotation against which the auto ex order was executed is no 
longer available;
    (v) a universal contra shall be reported as the contra to each 
automatic execution of an auto ex order.
    (vi) the unfilled balance, if any, of an auto ex order shall be 
executed in accordance with, and to the extent provided by Exchange 
Rule 1000.
    [(b) If the depth of the published bid or offer is not sufficient 
to fill an auto ex order in its entirety, the unfilled balance of the 
order shall be routed to the Floor and shall be displayed in the 
auction market.]
    [(c)] (b) No published bid or offer shall be entitled to claim 
precedence based on size with respect to executions against auto ex 
orders.
* * * * *

Rule 1002

    [Orders designated as ``a] Auto ex[''] orders in a particular 
stock, Investment Company Unit (as defined in paragraph 703.16 of the 
Listed Company Manual), or Trust Issued Receipt (as defined in Rule 
1200) shall be eligible to receive an automatic execution if entered 
after the Exchange has disseminated a published bid or offer until 3:59 
p.m. for stocks and Trust Issued Receipts, or 4:14 p.m. for Investment 
Company Units, or within one minute of any other closing time of the 
Exchange's floor market. [Orders designated as ``a] Auto ex[''] orders 
in a particular stock, Trust Issued Receipt, or Investment Company Unit 
that are entered prior to the dissemination of a bid or offer or after 
3:59 p.m. for stocks and Trust Issued Receipts, after 4:14 p.m. for 
Investment Company Units, or within one minute of any other closing 
time, shall be [displayed as limit orders] executed in the auction 
market unless it is a commitment to trade received on the Floor through 
ITS or is an auto ex order designated as immediate or cancel.
* * * * *

Rule 1003

    If a transaction has been agreed upon in the auction market, and an 
automatic execution involving auto ex orders is reported at a different 
price before the auction market transaction is reported, any tick test 
applicable to such auction market transaction shall be based on the 
last reported trade on the Exchange prior to such execution of auto ex 
orders.
* * * * *

Rule 1004

    Automatic executions of auto ex orders shall elect stop orders, 
stop limit orders and percentage orders electable at the price of such 
executions. Any stop orders so elected shall be executed pursuant to 
the Exchange's auction market procedures, and shall not be guaranteed 
an execution at the same price as subsequent automatic executions of 
auto ex orders.
* * * * *

[Rule 1005

    An auto ex order for any account in which the same person is 
directly or indirectly interested may only be entered at intervals of 
no less than 30 seconds between entry of each such order in a stock, 
Investment Company Unit (as defined in paragraph 703.16 of the Listed 
Company Manual), or Trust Issued Receipt (as defined in Rule 1200), 
unless the orders are entered by means of separate order entry 
terminals, and the member or member organization responsible for entry 
of the orders to the Floor has procedures in place to monitor 
compliance with the separate terminal requirement.]
* * * * *

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 and is set forth in Sections A, B, and C below.

[[Page 50413]]

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

1. Purpose
    The Exchange believes that the proposed amendments to its rules \5\ 
create a hybrid market, where investors would be able to choose the way 
their orders are executed. According to the Exchange, investors seeking 
the speed and certainty of an automatic execution at the published bid 
or offer to the extent of the volume associated with such published bid 
or offer, with any residual sweeping the book until executed, its limit 
price, if any, is reached, or a ``liquidity replenishment point'' 
(``LRP''), as described below, is reached, as well as those who prefer 
the opportunity for price improvement provided by the auction market, 
would be able to obtain executions in accordance with their preferences 
on the NYSE. The Exchange represents that the proposed amendments would 
be accomplished by, among other things, enhancements to Direct+, making 
its speed and execution certainty available to a wider variety of 
orders. In addition, the Exchange proposes to provide for a new order 
type, an AL order, and to modify the way market orders would be handled 
in the auction market to provide an opportunity for price improvement 
for those who desire it. The proposed amendments also address 
``sweeps,'' ``locked'' and ``crossed'' markets, and ``trade-throughs'' 
and seek to make Direct+ permanent. The Exchange represents that the 
changes described below may be implemented in stages given their 
significance to the marketplace, programming requirements, and the need 
for members and order routing vendors to make related changes to their 
systems.
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    \5\ To the extent any inconsistencies exist between this filing 
and existing Exchange rules, the amendments and concepts proposed 
herein take precedence and override such rules.
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Approval to Make Direct+ Permanent
    Direct+ was originally approved as a one-year pilot program ending 
on December 21, 2001.\6\ The pilot was subsequently extended for three 
additional one-year periods, and is currently scheduled to end on 
December 23, 2004.\7\ The Exchange represents that the pilot has given 
the Exchange considerable experience with automated executions, as 
approximately 8% of the Exchange's adjusted average daily volume \8\ is 
currently executed through Direct+. As a result of this experience and 
the extensive changes to the Exchange's market envisioned by the 
proposed amendments discussed below, the Exchange hereby seeks approval 
to make Direct+ permanent.\9\
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    \6\ See Securities Exchange Act Release No. 43767 (December 22, 
2000), 66 FR 834 (January 4, 2001) (SR-NYSE-00-18).
    \7\ See Securities Exchange Act Release Nos. 45331 (January 24, 
2002), 67 FR 5024 (February 1, 2002) (SR-NYSE-2001-50); 46906 
(November 25, 2002), 67 FR 72260 (December 4, 2002) (SR-NYSE-2002-
47); and 48772 (November 12, 2003), 68 FR 65756 (November 21, 2003) 
(SR-NYSE-2003-30).
    \8\ Based on data through June 2004.
    \9\ This would also have the effect of superceding four filings 
that have been approved by the Commission during the Direct+ pilot, 
which were made part of the pilot. See Securities Exchange Act 
Release No. 47463 (March 7, 2003), 68 FR 12122 (March 13, 2003) (SR-
NYSE-2002-44). However a portion of SR-NYSE-2002-37 that amends NYSE 
Rule 1002 to provide that Direct+ executions in ETFs are available 
until 4:14 p.m. would be made permanent by this filing. See 
Securities Exchange Act Release No. 47024 (December 18, 2002), 67 FR 
79217 (December 27, 2002) (SR-NYSE-2002-37). See also Securities 
Exchange Act Release Nos. 47353 (February 12, 2003), 68 FR 8318 
(February 20, 2003) (SR-NYSE-2002-58) and 47614 (April 2, 2003), 68 
FR 17140 (April 8, 2003) (SR-NYSE-2002-55).
---------------------------------------------------------------------------

Proposed Amendments to Exchange Rules
    In order to create the hybrid market, the Exchange proposes the 
following amendments to its rules:
    i. Eliminate order size restrictions for automatically executed 
(``auto ex'') orders.
    ii. Eliminate the 30-second limitation for consecutive auto ex 
orders for accounts in which the same person is directly or indirectly 
interested.
    iii. Permit immediate or cancel (``IOC'') orders to be 
automatically executed.
    iv. Permit market orders to be automatically executed. Market 
orders not designated for automatic execution would be executed in the 
auction market where they would have an opportunity for price 
improvement. Market orders not immediately executed would be bid 
(offered) at the minimum variation better than the Exchange's best bid 
(offer) at the time the order is routed to the Display Book for 
execution. If the order is not executed in the auction market within 15 
seconds, it would be automatically executed. In addition, if an order 
enters the market on the same side at a better price, the contra-side 
offer (bid) changes so that an execution would give price improvement 
to the market order, or there is a quote at the minimum variation, the 
market order would be automatically executed, even if 15 seconds has 
not elapsed. For these reasons, a market order could be executed at an 
inferior price than the prevailing price at the time the order was 
routed to the Display Book.
    v. Limit orders to buy priced at or above the Exchange's published 
offer and limit orders to sell priced at or below the Exchange's 
published bid (``marketable limit orders'') \10\ would be automatically 
executed, whether or not such orders are designated for automatic 
execution. Non-marketable limit orders are routed to the Display Book, 
even if designated auto ex, and would be represented in the auction 
market. When such orders become marketable, they would be included in 
the quote and could participate in automatic executions.
---------------------------------------------------------------------------

    \10\ Orders priced this way ``lock'' or ``cross'' the market. A 
``locking'' bid (offer) is one that is the same price as the 
published offer (bid). For example, where a published offer (bid) is 
.50, a bid (offer) of .50 would ``lock'' the market, and there would 
be no spread. A ``crossing'' bid (offer) is one that is higher 
(lower) than the offer (bid), for example, a bid of .50 when the 
published offer is .45, or an offer of .45 when the published bid is 
.50.
---------------------------------------------------------------------------

    vi. Create a new order type--AL orders. AL orders would provide the 
opportunity for price improvement inherent in the auction market. AL 
orders would be required to be designated as such when entered. An AL 
order to buy should have a limit price at or above the published offer, 
and an AL order to sell should have a limit price at or below the 
published bid.\11\
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    \11\ An AL order that is not marketable at the time it is routed 
to the Display Book would be represented in the auction market in 
the same way as any non-marketable limit order, until it is executed 
or cancelled.
---------------------------------------------------------------------------

    As a marketable limit order, an AL order would be expected to be 
represented quickly in the auction market for potential price 
improvement and, if not executed immediately, would be reflected as the 
NYSE best bid or offer, as follows: an AL order to buy would be quoted 
the minimum variation better than the Exchange's published best bid, 
and an AL order to sell would be quoted the minimum variation better 
than the Exchange's published best offer, regardless of the AL order's 
limit price. If a subsequent order on the same side as the AL order 
enters the market at a better price than the AL order is bidding 
(offering) at the time, takes some or all of the displayed contra-side 
volume, the contra-side offer (bid) changes so that an execution at 
that price would give the AL order price improvement, or there is a 
quote at the minimum variation, the AL order would be automatically 
executed. In addition, if the AL order has not been executed after 15 
seconds, it would be automatically executed.
    An AL order could be executed at a price that is inferior to the 
price that was prevailing at the time the order was

[[Page 50414]]

entered. This could occur due to the cancellation or execution of the 
displayed contra-side liquidity before the AL order is executed.
    vii. Market orders designated for automatic execution (``auto ex 
market orders'') and marketable limit orders routed to the Display Book 
would be automatically executed via Direct+ at the price and extent of 
the Exchange's published bid or offer.\12\ Auto ex market and 
marketable limit orders to buy would be executed at the offer price, to 
the extent of the volume associated with the published offer. Auto ex 
market and marketable limit orders to sell would be executed at the bid 
price, to the extent of the volume associated with the published bid. 
The unfilled balance of an auto ex market or a marketable limit order 
would sweep the book until: (1) It is executed; (2) its limit price, if 
any, is reached; or (3) a LRP is reached. The execution of unfilled 
balances and LRPs are described in more detail below. The unfilled 
balance of an auto ex market order or a marketable limit order 
designated IOC would be automatically cancelled after the sweep.
---------------------------------------------------------------------------

    \12\ Reference to the Exchange's published bid and offer refers 
to the Exchange's best or inside bid and offer, not a Liquidity 
Quotesm bid or offer.
---------------------------------------------------------------------------

    viii. All quotes would be subject to automatic execution, unless 
designated otherwise. Non-auto-executable quotes could be generated 
electronically when LRPs are reached or by the specialist gapping the 
quote due to an order imbalance.\13\ A transaction, update of the quote 
by the specialist, or a timer-generated quote update, as discussed 
below, would resume automatic executions and autoquote.
---------------------------------------------------------------------------

    \13\ Automatic executions also would not be available when the 
Exchange's published quotation is in non-firm mode or trading in the 
security has been halted. These are unusual situations and happen 
infrequently. In addition, during the time that a report of 
execution is being made through the Display Book, automatic 
executions would continue until the volume associated with the bid 
and/or offer decrements to 100 shares and then would be suspended 
until the market is requoted. Automatic executions would then 
suspend until the reporting is concluded.
---------------------------------------------------------------------------

    ix. The Exchange believes that LRPs would be volatility moderators 
and would assist in the maintenance of fair and orderly markets during 
sweeps. When a LRP is reached, the quotation would not be available for 
automatic execution and would be designated as such. Autoquote would be 
suspended, although cancellations of orders would be permitted. When a 
LRP is reached, the specialist, crowd, and off-floor market 
participants could enter orders to replenish liquidity on either side 
of the market.
    The Exchange proposes two new LRPs--a price-based LRP and a 
momentum-based LRP. The price-based LRP would be a minimum of five 
cents from the Exchange bid or offer, rounded to the next nearest 
nickel.\14\ A specified price movement over a specified period during a 
trading session would trigger the momentum-based LRP. The Exchange 
represents that the precise parameters for the momentum-based LRP are 
currently under review and would be identified at a later time and 
submitted as an amendment to this filing.\15\
---------------------------------------------------------------------------

    \14\ For example, where the quote is .10-.12, sweep transactions 
could occur at .12, .13, .14, .15, .16, .17, .18, .19, and .20, the 
LRP, and at .10, .09, .08, .07, .06, and .05, the LRP. Transactions 
could not occur at .21 or higher and .04 or lower, until the 
specialist executes a transaction or requotes the market. Similarly, 
where the quote is .04-.09, LRPs would be .95 and .15. Telephone 
conversation between Nancy R. Jenkins, Managing Director, NYSE, and 
Kelly Riley, Assistant Director, Division, Commission, on August 4, 
2004.
    \15\ Telephone conversation between Nancy R. Jenkins, Managing 
Director, NYSE, and Kelly Riley, Assistant Director, Division, 
Commission, on August 10, 2004.
---------------------------------------------------------------------------

    In addition, Exchange rules currently provide that automatic 
execution is not available if the execution price would be more than 
five cents away from the last reported transaction price in the 
relevant security on the Exchange. The Exchange proposes to amend this 
rule to provide for execution price parameters based on the price of 
the security, rather than a uniform five-cent standard. Adoption of 
additional LRPs or changes to a LRP would be made as appropriate. 
Information about LRPs would be disseminated by the Exchange.
    x. The unfilled balance (referred to as the residual) of any auto 
ex market order or a marketable limit order would ``sweep'' the book, 
automatically executing until it is filled, its limit price if any is 
reached, or a LRP is reached.\16\ Bids and offers on the Display Book 
between the displayed bid or offer and the sweep ``clean-up'' price 
would receive price improvement at the ``clean-up'' price.\17\ Any 
balance remaining after the order reaches its limit price, if any, or a 
LRP is reached, would remain on the book for handling in the auction 
market where it would become a bid or offer at its limit price or the 
LRP price, whichever is reached first. If executed at the price at 
which it is bidding (offering), the balance would have priority; if 
executed at a different price--within the parameters of its limit, if 
any--the balance would trade on parity with the crowd. However, if an 
auto ex market order or a marketable limit order is marked IOC, any 
unfilled balance remaining after the sweep or when a LRP is reached 
would be automatically cancelled.
---------------------------------------------------------------------------

    \16\ If during a sweep, a better priced bid or offer is 
published by another market in which an automatic execution is 
immediately available or such bid is otherwise protected from a 
trade-through (the execution of an order in one market at a price 
that is inferior to a price for more than one round lot displayed in 
another market), the portion of the sweeping order that satisfies 
the better-priced bid or offer would be automatically routed to such 
market, if not matched by the specialist, as described infra. The 
sweep would continue without that portion of the order.
    \17\ The sweep price could be improved by the broker agency 
interest file and specialist interest file, discussed infra.
---------------------------------------------------------------------------

    xi. When a LRP is reached and no residual remains, or a residual 
remains and it is not capable of trading at a price above (in the case 
of a buy order) or below (in the case of a sell order) the LRP, 
autoquote would resume as soon as possible, but in no more than five 
seconds, unless in that time, orders came in that locked or crossed the 
market. If a LRP is triggered and a residual capable of trading at a 
price above or below the LRP remains, but does not lock or cross the 
market, autoquote would remain disengaged, and automatic executions 
could not occur until the specialist trades or requotes the market. 
However, autoquote and auto executions would resume in any event in no 
later than 28 seconds. Where a residual remains and it is capable of 
trading above (below) a LRP and it locks or crosses the market, 
autoquote and auto executions would not be available until a trade 
occurs or the specialist requotes the market.
    xii. Intermarket Trading System (``ITS'') commitments to trade sent 
to the Exchange from another market center because the Exchange's 
published bid or offer is the national best bid or offer (``incoming'' 
ITS commitments) would be automatically executed. These commitments to 
trade would be executed to the extent of the volume of the Exchange's 
published bid or offer, and any unfilled balance would be automatically 
cancelled.
    xiii. Where the national best bid or offer is published by another 
market center in which an automated execution is immediately available, 
or such bid or offer is otherwise protected from a trade-through and 
the specialist has not systemically matched the price associated with 
such bid or offer, the Exchange would automatically route to such 
market center the portion of a market or marketable limit order that 
would satisfy the better-priced bid or offer (``outgoing'' ITS 
commitments), unless the entity entering the order indicated that it 
was contemporaneously satisfying such better bid or offer. If the 
routed commitment is not executed or not executed in its entirety, such 
commitment, or balance thereof, would

[[Page 50415]]

return to the Exchange. Upon its return, the portion that had been sent 
away would be handled in accordance with its terms, as described 
herein. The effective time for proper sequencing purposes of the 
returned portion would be the time it returns to the Exchange.
    xiv. A specialist could cause a non-auto-executable quote by 
gapping the quotation \18\ due to an order imbalance in accordance with 
the policies and procedures of the Exchange. The quote would be 
designated as non-auto-executable, and autoquote would be suspended, 
except for cancellations.\19\ Once a trade occurs or a non-gapped quote 
is published, autoquote and automatic execution would resume.
---------------------------------------------------------------------------

    \18\ The purpose of a gapped quote would be to disseminate the 
existence of an order imbalance and minimize short-term price 
dislocation associated with such imbalance by allowing appropriate 
time for the entry of offsetting orders or the cancellation of 
orders on the side of the imbalance. An imbalance could occur 
because of a sudden influx of orders on the same side of the market, 
the entry of one or more large-sized order(s) with little or no 
offsetting interest, or when a member proposes to effect a one-sided 
block transaction at a significant premium or discount to the 
prevailing market. The size of an imbalance suitable for gapped 
quoting would be at least 10,000 shares or a quantity of stock 
having a value of $200,000 or more. The specialist would gap the 
quote by widening the spread, with the imbalance side priced at the 
last sale and the contra-side priced where the specialist thinks 
stock could trade if the imbalance continues to exist. The size 
identified with the gapped quote would be 100 x size or size x 100, 
the size side being the amount of the imbalance. The specialist 
would identify a quote as gapped to differentiate from non-gap quote 
related 100-share bids or offers.
    \19\ This is different from the Exchange's current gapped 
quotation procedures, which are described in Information Memo 04-27 
(June 9, 2004).
---------------------------------------------------------------------------

    xv. Specialists would have the ability to systemically supplement 
the quote, determine price points outside the Exchange best bid and 
offer to which he or she wants to provide liquidity by bidding or 
offering on behalf of the dealer account, which could serve to improve 
a sweep price, facilitate a single-price execution at the bid or offer 
price, and systemically match outgoing ITS commitments. When 
facilitating a single-price execution, the specialist would be required 
to buy (sell) all of the volume remaining on the order being 
facilitated. The specialist interest file would not be disseminated 
unless at the Exchange best bid or offer price. Specialist interest 
that establishes the best bid or offer would be entitled to priority 
with the crowd at that price for one trade, as current Exchange rules 
permit. Specialist interest at other prices would yield to agency 
orders and the broker agency interest file, discussed below, except 
that, once orders on the book are filled, specialists could trade on 
parity with the crowd, including broker agency interest.\20\
---------------------------------------------------------------------------

    \20\ In a filing pending with the Commission, the Exchange has 
proposed amendments to its rules that permit a customer to preclude 
the specialist from trading on parity with the customer. See 
Securities Exchange Act Release No. 50090 (July 27, 2004), 69 FR 
46197 (August 2, 2004) (SR-NYSE-2004-06). These amendments, if 
approved, would apply to transactions with the specialist interest 
file.
---------------------------------------------------------------------------

    xvi. Brokers would have the ability to place within the Display 
Book system an agency interest file at varying prices at or outside the 
quote with respect to orders the broker is representing, except for 
``G'' orders.\21\ This interest would not be disseminated unless at the 
Exchange's best bid or offer. The specialist would be able to view only 
aggregated broker agency interest at each price. Broker agency interest 
would have priority if it establishes the best bid or offer and would 
be on parity with other orders at its price, except specialist 
interest, as described above. The broker's agency interest could serve 
to improve the price of a sweep order. The broker would be able to 
place agency interest in only one crowd at any given time, as 
determined by the Exchange. The broker would be required to cancel his 
or her agency interest file when leaving the crowd. When the broker 
wants to trade as part of the crowd on the same side and at the same 
price as his or her agency interest, the broker would be required to 
add to the existing agency interest or cancel any agency interest at 
that price before verbally trading in the crowd. If the broker leaves 
the crowd without canceling his or her agency interest file and a trade 
occurs involving such interest, the broker would be held to that trade.
---------------------------------------------------------------------------

    \21\ ``G'' orders refers to proprietary orders represented 
pursuant to Section 11(a)(1)(G) of the Act. 15 U.S.C. 78k(a)(1)(G).
---------------------------------------------------------------------------

    xvii. Eligible tick-restricted orders would be capable of automatic 
execution when they are marketable. A tick-restricted order not 
immediately eligible to trade would remain on the book as a tick-
restricted order for handling in the auction market.\22\
---------------------------------------------------------------------------

    \22\ Tick-restricted stop orders would not be eligible for 
automatic execution.
---------------------------------------------------------------------------

    xviii. The specialist would no longer be responsible for assigning 
the number of shares to each contra-party with respect to an automatic 
execution that includes specialist or crowd orders. Instead, such 
assignment would be done systemically.
    xix. Elected and converted portions of CAP-DI orders (convert and 
parity percentage orders) would be automatically executed and could 
participate in a sweep.
    xx. Elected and converted CAP-DI orders on the same side of the 
market as an automatically executed order would participate in a 
transaction at the bid (offer) price if there is volume remaining after 
the order is filled by such bid (offer). Elected and converted CAP-DI 
orders on the same side of the market as an automatically executed 
order that sweeps the book would participate in a transaction at the 
sweep clean up price if there is volume remaining on the book or from 
contra-side elected CAP-DI orders at that price.
    Elected and converted CAP-DI orders on the contra-side of the 
market as an automatically executed order would participate in a 
transaction at the bid (offer) price and the sweep clean up price, if 
any, providing liquidity to the market.
Operation of Direct+ Under Existing Rules
    Direct+ currently provides for the automatic execution of straight 
limit orders (i.e. orders without tick restrictions) of 1,099 shares or 
less (5,000 shares or less for Investment Company Units, as defined in 
paragraph 703.16 of the Listed Company Manual, and for Trust Issued 
Receipts, such as HOLDRs, as defined in NYSE Rule 1200) \23\ against 
trading interest reflected in the Exchange's published quotation. 
Orders capable of execution via Direct+ are defined in NYSE Rule 13 as 
``auto ex'' orders. It is not mandatory that all eligible limit orders 
be entered as auto ex orders. Rather, the member organization entering 
the order (or its customer if enabled by the member organization) can 
choose to enter an auto ex order when such member organization (or 
customer) believes that the speed and certainty of an execution at the 
Exchange's published bid or offer price is in the customer's best 
interest. Where the customer's interests are best served by being 
afforded the opportunity for price improvement, the member organization 
(or customer) may enter a limit or market order by means of the 
SuperDot [reg] (``DOT'') system for representation in the auction 
market.
---------------------------------------------------------------------------

    \23\ See Information Memorandum 03-28 (June 20, 2003) 
(Amendments to Direct+). The Commission approved a proposal to 
increase the size of Direct+ orders in Investment Company Units and 
Trust Issued Receipts to a maximum level of 10,000 shares. See 
Securities Exchange Act Release No. 47024 (December 18, 2002), 67 FR 
79217 (December 27, 2002) (SR-NYSE-2002-37).
---------------------------------------------------------------------------

    Direct+ orders are entered through DOT with the indicator NX added 
to identify the order as an auto ex order. In accordance with limit 
price requirements, the auto ex order is priced at or above the 
Exchange's published

[[Page 50416]]

offer (in the case of an auto ex order to buy), or at or below the 
Exchange's published bid (in the case of an auto ex order to sell). The 
auto ex order receives an automatic execution when the limit price is 
equal to or better than the published bid or offer, without being 
exposed to the price improvement mechanism of the auction market, 
provided the bid or offer is still available.\24\ The transaction 
report is returned through DOT to the member organization (or customer) 
that entered it.
---------------------------------------------------------------------------

    \24\ See NYSE Rule 1000.
---------------------------------------------------------------------------

    An auto ex order equal to or greater than the size of the 
Exchange's published bid or offer trades against the entire published 
bid or offer, and a new bid or offer is published pursuant to NYSE Rule 
60(e). Auto ex orders that cannot be immediately executed are displayed 
as limit orders in the auction market,\25\ as is the unfilled balance 
of any partially executed auto ex order.\26\
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    \25\ See NYSE Rule 1000.
    \26\ See NYSE Rule 1001(b).
---------------------------------------------------------------------------

    Where the best bid or offer is in another market, the auto ex order 
is delivered to the specialist, who must either match the better price 
displayed by the other market or send a ``commitment to trade'' to the 
market displaying the best price via ITS.\27\
---------------------------------------------------------------------------

    \27\ See NYSE Rule 15A.
---------------------------------------------------------------------------

    In any instance where the automatic execution feature is not 
available, the auto ex order is entered for execution in the Exchange's 
auction market. Pursuant to current NYSE Rule 1000, automatic execution 
is not available when:
    (i) The NYSE's published quotation is in the non-firm quote mode;
    (ii) the execution price would be more than five cents away from 
the last reported transaction price in the subject security on the 
Exchange;
    (iii) with respect to a single-sided auto ex order, a better price 
exists in another ITS participating market center;
    (iv) with respect to a single-sided auto ex order, the NYSE's 
published bid or offer is 100 shares (on the side such order would be 
executed against);
    (v) a transaction outside the NYSE's published bid or offer 
pursuant to NYSE Rule 127 is in the process of being completed, in 
which case the specialist should publish a bid and/or offer that is 
more than five cents away from the last reported transaction price in 
the subject security on the Exchange; and
    (vi) trading in the subject security has been halted.
    The contra side of an auto ex order execution is the trading 
interest reflected in the Exchange's published bid or offer. A 
universal contra is reported as the contra to each auto ex execution, 
with such contra interest participating in accordance with the 
Exchange's auction market principles of priority and parity as codified 
in NYSE Rule 72 (NYSE Rule 1001(a)), except that no published bid or 
offer is entitled to claim precedence based on size with respect to 
executions against auto ex orders (NYSE Rule 1001(c)).
    The specialist is responsible for assigning the appropriate number 
of shares to each contra participant after an auto ex order has been 
executed that includes specialist or crowd orders.\28\ If the depth of 
the published bid or offer is not sufficient to fill an auto ex order 
in its entirety, the unfilled balance is routed to the floor and 
displayed in the auction market.\29\ Once the order is entered in the 
auction market, it is treated the same as any other limit order entered 
into DOT.
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    \28\ See NYSE Rule 1001(a).
    \29\ See NYSE Rule 1001(b).
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    The specialist is the contra party to any automatic execution of an 
auto ex order where interest reflected in the published quotation 
against which the auto ex order was executed is no longer 
available.\30\ This may occur even though the specialist's interest was 
not part of such quotation. For example, the published quotation may 
reflect the interest of a broker in the crowd that was executed in an 
auction market transaction. If an auto ex order is executed against the 
published bid or offer before it can be updated, the specialist must 
take the contra side of the auto ex execution. In other instances, the 
crowd broker might cancel his or her interest as reflected in the 
published quotation, but an auto ex order might be executed against 
such quotation before it can be updated. Again, in such instance, the 
specialist would be required to take the contra side of the auto ex 
execution.
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    \30\ See NYSE Rule 1001(a)(iv).
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    The specialist's obligation under NYSE Rule 1001(a)(iv) exists 
regardless of the tick associated with the automatic execution. 
However, in the auction market context, NYSE Rule 104, which sets forth 
the specialist's affirmative and negative obligations, restricts the 
specialist's ability to purchase stock on direct plus ticks or sell 
stock on direct minus ticks. Accordingly, the Exchange sought and 
received Commission approval of an interpretation of NYSE Rule 104 \31\ 
that provides that any instance in which the specialist is effecting 
such a direct tick transaction only because he or she has been required 
to assume the contra side of an auto ex execution shall be deemed to be 
a ``neutral'' transaction for purposes of NYSE Rule 104, and shall not 
be deemed a violation of the Exchange rule. The Exchange believes that 
this interpretation is appropriate because the specialist is not 
setting the price, but is simply being required to trade at a price set 
by other market participants.\32\
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    \31\ See note 6, supra.
    \32\ The Exchange continues to believe this interpretation is 
appropriate and hereby requests that the Commission continue its 
approval of this interpretation.
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    Similarly, the Exchange sought and received Commission approval 
\33\ of its interpretation that NYSE Rule 91 \34\ does not apply where 
the specialist is the contra party to an auto ex execution, as the 
specialist does not accept an auto ex order for execution or act as 
agent in the execution of such order.\35\
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    \33\ See note 6, supra.
    \34\ NYSE Rule 91 includes transaction confirmation requirements 
in instances in which the specialist participates in a transaction 
as both principal and agent. For recent amendments to this rule, see 
the filing SR-NYSE-2002-32. See Securities Exchange Act Release No. 
49183 (February 4, 2004), 69 FR 6354 (February 10, 2004).
    \35\ The Exchange continues to believe this interpretation is 
appropriate and hereby requests the Commission continue its approval 
of this interpretation.
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    Similarly, the Exchange received an interpretive position from the 
Commission \36\ that under the short sale rule, Rule 10a-1 of the 
Act,\37\ the specialist is not deemed to be in violation when he or she 
is required under NYSE Rule 1001(a)(iv) to take the contra side of an 
auto ex execution on a minus or zero minus tick and has an existing 
short position or would be creating a short position by virtue of such 
execution. In such instance, the specialist is not deemed to be 
engaging in manipulative behavior to influence the price of the subject 
security because the specialist is simply being required to trade at a 
price set by other market participants.\38\
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    \36\ See letter from James E. Buck, Secretary and Senior Vice 
President, Exchange, to Larry E. Bergmann, Senior Associate 
Director, Division, Commission, dated December 21, 2000 (``Exemption 
Letter'') and response from Larry E. Bergmann to James E. Buck, 
dated December 22, 2000.
    \37\ 17 CFR 240.10a-1.
    \38\ The Exchange continues to believe this interpretation is 
appropriate, particularly in light of the recent adoption of 
Regulation SHO by the Commission. See Securities Exchange Act 
Release No. 50103 (July 28, 2004), and hereby requests its continued 
approval.
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    Auto ex orders are eligible to receive an automatic execution if 
entered after the Exchange has disseminated a published bid or offer 
until 3:59 p.m. for stocks and Trust Issued Receipts, 4:14 p.m. for 
Investment Company Units, or within one minute of any other closing 
time of the Exchange's floor market. Orders designated as auto ex that 
are

[[Page 50417]]

entered prior to the dissemination of a bid or offer or after 3:59 
p.m./4:14 p.m. or within one minute of any other closing time, are 
displayed as limit orders in the auction market.\39\
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    \39\ See NYSE Rule 1002.
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    Automatic executions of Direct+ orders elect stop orders, stop 
limit orders and percentage orders electable at the price of such 
executions. Any stop orders so elected are executed pursuant to 
Exchange auction market procedures and are not guaranteed an execution 
at the same price as subsequent automatic executions of auto ex 
orders.\40\ The Exchange sought and the Commission approved an 
interpretation \41\ that, for the purposes of NYSE Rule 123A, the 
specialist is not required to fill any stop orders elected by an auto 
ex execution at the price of the electing sale in any instance where 
the specialist was required by NYSE Rule 1001(a)(iv) to take the contra 
side of an auto ex execution.
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    \40\ See NYSE Rule 1004.
    \41\ See note 6, supra.
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    If a transaction is being completed in the auction market and an 
execution involving auto ex orders is reported at a different price 
before the auction market transaction is reported, any tick test 
applicable to the auction market transaction is based on the last 
reported trade prior to the execution of the auto ex order.\42\ For 
example, assume the following: the Exchange's published quotation is 20 
bid for 5,000 shares, and 5,000 shares offered at 20.04. The last 
reported sale was 20.02, which means the published bid is a plus tick. 
A broker in the crowd bids 20.03 for 5,000 shares, and another broker, 
representing a short sale order, agrees to trade at the 20.03 bid 
price. Before the trade at 20.03 is reported, an auto ex order to buy 
is automatically executed at the 20.04 published offer price, making 
the trade to be reported at 20.03 a minus tick, which would preclude 
execution of the order to sell short.
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    \42\ See NYSE Rule 1003.
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    NYSE Rule 1003 provides that in this instance, for the purposes of 
NYSE Rule 440B and Rule 10a-1 of the Act, the short sale tick test 
would be based on the sale of 20.03, a plus tick compared with the last 
reported sale of 20.02 at the time the crowd brokers were completing 
the trade. The short sale would be reported to the Consolidated Tape as 
``sold'' indicating other transactions in the stock have printed on the 
tape between the time of the sold transaction and its print time. 
Nevertheless, a floor broker will not be permitted to sell short at a 
price lower than the best bid displayed in the auction market at the 
time the transaction is reported.
    Finally, current Direct+ rules restrict the frequency and size of 
auto ex orders. An auto ex order for any account in which the same 
person is directly or indirectly interested may only be entered at 
intervals of no less than 30 seconds between entry of each such order 
in a stock, Investment Company Unit, or Trust Issued Receipt, unless 
the orders are entered by means of separate order entry terminals, and 
the member or member organization responsible for entry of the orders 
to the floor has procedures in place to monitor compliance with the 
separate terminal requirement.\43\ In addition, the size of auto ex 
orders in stocks is limited to 1,099 shares. Auto ex orders in 
investment company units and Trust Issued Receipts are currently 
limited to 5,000 shares, although the Exchange is authorized to 
increase the size limit for these orders to 10,000 shares.\44\
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    \43\ See NYSE Rule 1005.
    \44\ See NYSE Rule 13.
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Operation of Hybrid Market Under the Proposed Amendments
    Pursuant to the proposed amendments, auto ex market orders, 
marketable limit orders, and incoming ITS commitments to trade routed 
to the Display Book, regardless of size, would be eligible for 
automatic execution \45\ against the trading interest reflected in the 
Exchange's published quotation, with any unfilled balance ``sweeping'' 
the book, broker agency interest file, and specialist interest file 
until executed, its limit price, if any, is reached, or a LRP is 
reached. AL orders, market orders, and non-marketable limit orders 
would remain on the Display Book for handling in the auction market.
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    \45\ A few order types would be ineligible for automatic 
execution, including, ``all or none'' (AON), CAP, ``opening only'' 
(OPG), ``fill or kill'' (FOK), ``limit on close'' (LOC), ``market on 
close'' (MOC), stop, stop limit, and ``basis'' (BAS) orders. Odd 
lots would also be ineligible for automatic execution via Direct+ at 
this time.
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    Unless the published bid and/or offer has been designated non-auto 
executable, auto ex market orders, marketable limit orders and incoming 
ITS commitments to buy would be automatically executed at the offer 
price to the extent of the volume associated with the published offer. 
Auto ex market orders, marketable limit orders, and incoming ITS 
commitments to sell would be executed at the bid price, to the extent 
of the volume associated with the published bid. The unfilled balance 
of auto ex market and marketable limit orders would sweep the book, 
automatically executing until filled; their limit price, if any is 
reached; or a LRP is reached.
    The unfilled balance of any incoming ITS commitment to trade would 
be cancelled. Furthermore, the unfilled balance of any auto ex market 
order or marketable limit order designated IOC would be cancelled after 
the sweep.
    Any residual remaining after an auto ex market order or marketable 
limit order sweeps to its limit price, if any, or reaches a LRP, would 
remain on the book for handling in the auction market where it would 
become a bid or offer at its limit price, or the LRP price, whichever 
is reached first. If the residual executes at the price at which it is 
bidding (offering), it would have priority. If it executes at a 
different price--within the parameters of its limit, if any--it would 
trade on parity.
    AL orders and market orders would be executed in the auction 
market, with an opportunity for price improvement. Both are marketable 
orders and, if not executed immediately in the auction market, would be 
reflected as the Exchange's best bid or offer quoted at the minimum 
variation better than the prevailing bid or offer. If not executed 
within 15 seconds, AL orders and market orders would be automatically 
executed. In addition, if a subsequent order enters the market on the 
same side at a better price, the contra-side offer (bid) changes so 
that an execution at that price would give the AL order or market order 
price improvement, or there is a quote at the minimum variation, the 
market or AL order would automatically trade, even if 15 seconds has 
not elapsed. AL orders, but not market orders, would also be 
automatically executed if a subsequent order enters the market on the 
same side and takes some or all of the displayed contra side liquidity.
    Multiple AL orders and market orders on the same side of the market 
would be aggregated at the best price (consistent with the AL order 
limits), and executions would occur based on time priority.
    AL orders and market orders would be executed at a price at or 
better than the national best bid or offer published by another market 
center in which an automated execution is immediately available or such 
bid or offer is otherwise protected from a trade-through at the time of 
the order's execution. If that price is not available on the Exchange, 
the portion of the order that would satisfy such better price would be 
automatically routed to the relevant market center, unless the entity 
entering the order indicated it was contemporaneously satisfying the 
better bid or offer.

[[Page 50418]]

    An AL order or market order could miss the market at the time it 
was entered, receiving an execution at an inferior price due to the 
cancellation or execution of the displayed contra-side liquidity before 
the order is executed.
    Non-marketable limit orders would be reflected in the published 
quotation in accordance with NYSE Rules 60 and 79A.15. Once in the 
published quotation, such orders could become the contra-side of an 
automatic execution and participate in a sweep.
    In any instance where the quote is non auto-executable, orders 
would be executed in the Exchange auction market. Autoquote would be 
suspended except for cancellations when automatic executions are not 
available.\46\
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    \46\ In addition, when a report of a transaction is being made 
through the Display Book, auto quote would be suspended until the 
reporting is concluded.
---------------------------------------------------------------------------

    When a LRP is reached and no residual remains, or a residual 
remains and it is not capable of trading at a price above (in the case 
of a buy order) or below (in the case of a sell order) the LRP, 
autoquote would resume as soon as possible, but in no more than five 
seconds, unless in that time, orders came in that locked or crossed the 
market. If a LRP is reached and a residual capable of trading at a 
price above or below the LRP remains, but does not lock or cross the 
market, autoquote would remain disengaged, and automatic executions 
could not occur until the specialist trades or requotes the market.
    Autoquote and auto execution, however, would resume in any event in 
no later than 28 seconds. Where a residual remains capable of trading 
at a price above (below) a LRP, and it locks or crosses the market, 
autoquote and auto ex would not be available until a trade occurs or 
the specialist requotes the market.
    A universal contra would continue to be reported as the contra to 
each auto ex execution, with such contra interest participating in 
accordance with the Exchange rules of priority and parity as codified 
in NYSE Rule 72. No published bid or offer would be entitled to claim 
precedence based on size with respect to executions against auto ex 
orders. However, the specialist would no longer be responsible for 
assigning the appropriate number of shares to each contra participant 
to an automatic execution that includes specialist and/or crowd orders. 
This would be done systemically.
    The specialist would continue to be the contra party to any 
automatic execution where interest reflected in the published quotation 
against which the auto ex order was executed is no longer available. 
Except with respect to transactions occurring with the broker agency 
interest file, as of today, this could occur even though the 
specialist's interest was not part of such quotation.\47\
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    \47\ The Exchange has committed to amending NYSE Rule 
1001(a)(iv) to reflect this proposed change. Telephone conversation 
between Nancy R. Jenkins, Managing Director, NYSE, and Kelly Riley, 
Assistant Director, Division, Commission, on August 10, 2004.
---------------------------------------------------------------------------

    Automatic executions would continue to be available from the time 
the Exchange disseminates a published bid or offer until 3:59 p.m. for 
stocks and Trust Issued Receipts, or 4:14 p.m. for Investment Company 
Units, or within one minute of any other closing time of the Exchange's 
floor market. Auto ex orders entered prior to the dissemination of a 
bid or offer or after 3:59 p.m./4:14 p.m. or within one minute of any 
other closing time, would be handled in the auction market.
    The current operation of Direct+ with respect to auction market 
short sales where an auto ex transaction changes the tick prior to the 
report of such short sale \48\ and the election of stop, stop limit, 
and percentage orders would remain unchanged.
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    \48\ See NYSE Rule 1003.
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Specialist Interest File
    Specialists would have the ability to systemically supplement the 
quote, determine price points outside the quote to which he or she 
wants to provide liquidity by bidding or offering on behalf of its 
dealer account, which could improve a sweep price, facilitate a single-
price execution at the bid or offer price, and systemically match 
outgoing ITS commitments. When facilitating a single-price execution, 
the specialist would be required to buy (sell) all of the volume 
remaining on the order being facilitated. The specialist interest file 
would not be disseminated unless it is at the Exchange's best bid or 
offer price. Specialist interest file that establishes the best bid or 
offer would be entitled to priority with the crowd at that price for 
one trade, as current Exchange rules permit. Specialist interest file 
at other prices would yield to agency orders and the broker agency 
interest file, except that, once orders on the book are filled, 
specialists could be on parity with the crowd, including broker agency 
interest file.
Broker Agency Interest File
    Brokers would have the ability to place within the Display Book 
system an agency interest file at varying prices at or outside the 
quote with respect to orders the broker is representing, except for 
``G'' orders. The broker agency interest file would not be disseminated 
unless it is at the Exchange best bid or offer. The specialist would be 
able to view only aggregated broker agency interest file at each price. 
Broker agency interest file would have priority if it establishes the 
best bid or offer, and would be on parity with other orders at its 
price, except specialist interest file, as described above. Broker 
agency interest file could serve to improve the price of a sweep order. 
The broker would be able to place an agency interest file in only one 
crowd at any given time, as determined by the Exchange. The broker 
would be required to cancel his or her agency interest file when 
leaving the crowd. When the broker wants to trade as part of the crowd 
at the same price on the same side of the market as his or her agency 
interest file, he or she would be required to add to his or her 
existing agency interest file or cancel agency interest file at that 
price before verbally trading in the crowd. If the broker leaves the 
crowd without canceling his or her agency interest file, and a trade 
occurs involving such interest file, the broker would be held to that 
trade.
``Locked'' and ``Crossed'' Markets
    The proposed amendments provide for automatic execution of any 
order that locks or crosses the Exchange market, unless the quotation 
is non-auto executable. If an order locking or crossing the market is 
not automatically executed in its entirety, the remaining portion of 
such order would sweep the book until executed, reaches its limit 
price, if any, or reaches a LRP. Once a LRP is reached, any residual 
that continues to lock or cross the market would be handled in the 
auction market.
Trade-Throughs
    Where the best bid or offer is published by another market center 
in which an automated execution is immediately available, or such bid 
or offer is otherwise protected from a trade-through, and the 
specialist has not systemically matched the price associated with such 
better bid or offer, the Exchange would automatically route as a 
commitment to trade the portion of any market order, auto ex market 
order, AL order, or limit order routed to the Display Book that 
satisfies such better bid or offer, unless the entity entering the 
order indicated that it was contemporaneously satisfying the better bid 
or offer. If such commitment to trade is not filled or not filled in 
its entirety,

[[Page 50419]]

the balance would be returned to the Exchange and handled in the manner 
described above, consistent with its instructions. The order entry time 
associated with this returned portion of the order would be the time of 
its return, not the time the order was first entered with the Exchange.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\49\ in general, and furthers 
the objectives of Section 6(b)(5),\50\ 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. The Exchange also believes that the proposed rule 
change is designed to support the principles of Section 11A(a)(1) of 
the Act \51\ in that it seeks to assure economically efficient 
execution of securities transactions, makes it practicable for brokers 
to execute investors' orders in the best market, and provides an 
opportunity for investors' orders to be executed without the 
participation of a dealer.
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    \49\ 15 U.S.C. 78f(b).
    \50\ 15 U.S.C. 78f(b)(5).
    \51\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement of 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 of 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, as amended.

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 rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NYSE-2004-05 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NYSE-2004-05. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NYSE-2004-05 and should be submitted on or before September 7, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\52\
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    \52\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-18638 Filed 8-13-04; 8:45 am]
BILLING CODE 8010-01-P