[Federal Register Volume 69, Number 186 (Monday, September 27, 2004)]
[Notices]
[Pages 57741-57742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2386]



[[Page 57741]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50412; File No. SR-NYSE-2004-46]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the New York Stock Exchange, 
Inc. To Amend Exchange Rule 104 Regarding Specialists' Ability to 
Establish a Proprietary Quote Interface to the Display Book

September 20, 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 August 16, 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. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NYSE is proposing to amend Exchange Rule 104 (Dealings by 
Specialists) to provide specialists with the ability to establish a 
special proprietary connection to the Display Book for the purpose of 
updating quotations systemically in Investment Company Units and Trust 
Issued Receipts. The text of the proposed rule change is set forth 
below. Additions are in italics.
Dealings by Specialists

Rule 104

    (a) No specialist shall effect on the Exchange purchases or sales 
of any security in which such specialist is registered, for any account 
in which he, his member organization or any other member, allied 
member, or approved person, (unless an exemption with respect to such 
approved person is in effect pursuant to Rule 98) in such organization 
or officer or employee thereof is directly or indirectly interested, 
unless such dealings are reasonably necessary to permit such specialist 
to maintain a fair and orderly market, or to act as an odd-lot dealer 
in such security.
    (b) Specialists shall have the ability to establish an external 
quote application interface (``Quote API'') which utilizes proprietary 
algorithms that allow the specialist, on behalf of the dealer account, 
to systematically update the Exchange published bid or offer within the 
Display Book system in Investment Company Units (as defined in 
paragraph 703.16 of the Listed Company Manual), or Trust Issued 
Receipts (as defined in Rule 1200). 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.
* * * * *

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

    In its filing with the Commission, the NYSE included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
item IV below. The Exchange has prepared summaries set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    Trading in decimals began in selected stocks on the Exchange on 
August 28, 2000. Since that time, the number of quotations published by 
the Exchange has increased exponentially. One impact of this increase 
in quotation traffic is an increased workload on specialists and their 
trading assistants who input quotes into the Exchange's trading 
systems.
    Currently, the Exchange's trading systems require the specialist to 
instruct his trading assistant to manually enter an updated or new 
quotation into the Display Book in instances when the specialist wishes 
to insert proprietary interest into a quote. Specialists regularly 
utilize external applications, such as proprietary spreadsheet 
algorithms, to generate quote values for the specialist's account.
    The Exchange proposes to provide specialists maintaining markets in 
Investment Company Units (``ICUs'') and Trust Issued Receipts 
(``TIRs''), with the ability to electronically interface with the 
Display Book via a proprietary connection (an ``Application Program 
Interface'' (``API'')) to allow quotes to be submitted from an external 
application to update both NYSE best quotes and NYSE LiquidityQuote.\3\ 
These external quotes would flow through the Display Book to market 
data systems, as today. The API would enable specialists in ICUs and 
TIRs to price the security more readily by eliminating the need to 
convey instructions to the trading assistant to update the quotation. 
The API, based on a specialist's proprietary pricing mode, would 
automate this process. All rules pertaining to the publication of 
quotations would continue to apply in the new environment. The use of 
API would change the current mechanical function of updating quotations 
to an automatic quotation update based upon the same pricing model or 
algorithms currently employed by the specialist.
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    \3\ LiquidityQuote, or NYLQ, is a firm, two-sided, real-time 
quote that is intended to reflect where ``size'' exists in a stock 
outside the best bid or offer. It provides a single price quote 
representing the cumulative number of shares bid or offered on the 
limit order book, in the trading ``crowd'' and by specialists as 
principal. Along with the NYSE best bid or offer, or ``inside 
quote,'' the specialist maintains this second quote and continuously 
disseminates it in real-time throughout the day. See Securities 
Exchange Act Release No. 47614 (April 2, 2003), 68 FR 17140 (April 
8, 2003) (SR-NYSE-2002-55).
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    The Exchange proposes to amend Rule 104 to provide for the ability 
of a specialist to utilize these quote interfaces. The proposed 
amendment states that a specialist would not be relieved of any duty or 
responsibility with respect to quotes if such a link is established.
2. Statutory Basis
    The Exchange believes that the basis for this proposed rule change 
is the requirement under section 6(b)(5) \4\ of the Act that an 
exchange have rules that are designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change would not 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

[[Page 57742]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    The proposed rule change is effective upon filing pursuant to 
paragraph (A) of section 19(b)(3) \5\ and Rule 19b-4(f)(5).\6\ This 
proposed rule change effects a change in an existing order-entry or 
trading system of a self-regulatory organization that does not (1) 
significantly affect the protection of investors or the public 
interest, (2) impose any significant burden on competition, or (3) have 
the effect of limiting the access to or availability of the system.
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(5).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal is 
consistent with the Act. 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-2004-46 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-2004-46. 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 Room. Copies of the 
filing also will be available for inspection and copying at the 
principal offices of the NYSE. 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-2004-46 and should be submitted on or before 
October 18, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).

Jill M. Peterson,
Assistant Secretary.
[FR Doc. E4-2386 Filed 9-24-04; 8:45 am]
BILLING CODE 8010-01-P