[Federal Register Volume 70, Number 24 (Monday, February 7, 2005)]
[Notices]
[Pages 6484-6486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-469]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51091; File No. SR-NYSE-2005-01]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Two Crossing Sessions in the Exchange's Off-Hours Trading 
Facility

January 28, 2005.
    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 January 4, 2005, 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 and 
II below, which Items have been prepared by the Exchange. The Exchange 
filed the proposed rule change pursuant to Section 19(b)(3)(A) of the 
Act \3\ and Rule 19b-4(f)(6) thereunder, which renders it effective 
upon filing with the Commission.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change makes operative the following pilot 
programs until February 1, 2006: Crossing Session III, for the 
execution of guaranteed price coupled orders by member organizations to 
fill the balance of customer orders at a price that was guaranteed to a 
customer prior to the close of the Exchange's 9:30 a.m. to 4 p.m. 
trading session (``Crossing Session III''); and Crossing Session IV, 
whereby an unfilled balance of an order may be filled at a price such 
that the entire order is filled at no worse price than the Volume 
Weighted Average Price (``VWAP'') for the subject security (``Crossing 
Session IV'') (Crossing Session III and Crossing Session IV, the 
``Pilots'').\5\
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    \5\ On November 12, 2004, the Exchange made an electronic 19b-4 
filing to extend the Pilots as of December 1, 2004, the date the 
Pilots were due to expire. The Commission did not receive this 
filing, however. With the instant proposed rule change, the Exchange 
is making the Pilots operative until February 1, 2006.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for the Proposed Rule Change

    In its filing with the Commission, 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 the proposed rule change is available on the NYSE's Web site 
(http://www.nyse.com), at the NYSE's Office of the Secretary, and at 
the Commission's Public Reference Room. 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
    In SR-NYSE-2002-40,\6\ the Commission approved the establishment of 
the Pilots in the Exchange's Off-Hours Trading Facility (``OHTF''), 
expiring on December 1, 2004. The instant proposed rule change makes 
the Pilots operative until February 1, 2006. No changes have been made 
to the manner in which the Pilots operate.\7\
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    \6\ See Securities Exchange act Release No. 48857 (December 1, 
2003), 68 FR 68440 (December 8, 2003) (SR-NYSE-2002-40).
    \7\ See January 7, 2005 telephone conference among Donald 
Siemer, Director, Market Surveillance, NYSE, Joseph P. Morra, 
Special Counsel, Division of Market Regulation (``Division''), 
Commission and Mitra Mehr, Attorney, Division, Commission.
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Background

    The purpose of SR-NYSE-2002-40 was to add two pilot programs, 
Crossing Session III and Crossing Session IV, to the OHTF. Before the 
proposed rule change, the OHTF consisted of Crossing Sessions I and II. 
Crossing Session I permits the execution, at the Exchange's closing 
price, of single-stock, single-sided closing price orders and crosses 
of single-stock, closing price buy and sell orders. Crossing Session II 
permits the execution of crosses of multiple-stock (``basket'') 
aggregate price buy and sell orders. For Crossing Session II, trade 
reporting is accomplished by reporting to the Consolidated Tape the 
total number of shares and the total market value of the aggregate-
price trades. There is no indication of the individual component stocks 
involved in the aggregate-price transactions.

[[Page 6485]]

Crossing Session III

    As described below, the Exchange is proposing to make operative 
until February 1, 2006, the pilot program, Crossing Session III, as 
described in Exchange Rule 907. This Pilot would continue to allow for 
the execution on the NYSE of ``guaranteed price coupled orders'' 
whereby member organizations could fill the unfilled balance of a 
customer order at a price which was guaranteed to the customer prior to 
the close of the Exchange's 9:30 a.m. to 4 p.m. trading session.

The Granting of ``Upstairs Stops''

    In serving their institutional customers, member firms may offer 
them a guarantee that a large size order will receive no worse than a 
particular price. Such a practice is usually referred to as an 
``upstairs stop,'' meaning that the firm guarantees that its customer's 
order will be executed at no worse price than the agreed-upon, 
guaranteed price, with the member firm trading for its own account, if 
necessary, to effectuate the guarantee.
    Typically, a member firm will seek to execute as much of the order 
as possible during the trading day at or below the ``stop'' price (in 
the case of a buy order) or at or above the ``stop'' price (in the case 
of a sell order). Any portion of the order not filled during the 
trading day will be completed after hours, with the firm either buying 
from, or selling to, its customer at a price which ensures that the 
entire order is executed at a price which is no worse than the ``stop'' 
price.
    Member firms typically execute the unfilled balance of the order, 
after the U.S. Consolidated Tape is closed, in the London over-the-
counter market, where trades are not reported in real time. The purpose 
of this is simply to minimize the possibility that other market 
participants may ascertain the firm's, or the customer's inventory 
position, and possibly trade in the subject security to the detriment 
of the firm that granted the upstairs stop.

Crossing Session IV

    The Exchange is also proposing to make operative until February 1, 
2006 the pilot program for Crossing Session IV as described in Exchange 
Rule 907. Crossing Session IV is a facility whereby member 
organizations may fill the unfilled balance of a customer's order at a 
price such that the overall order is filled at a price that is no worse 
than the VWAP for the subject security on that trading day. The member 
organization would be required to document its VWAP agreement with the 
customer and the basis upon which the VWAP price would be determined.

Operation of Crossing Sessions

    Crossing Session III and Crossing Session IV would continue to 
operate as follows:
    (i) The original order as to which an ``upstairs stop'' or ``VWAP'' 
has been granted must be for at least 10,000 shares;
    (ii) The customer must have received a ``stop'' (guaranteed price) 
or VWAP for the entire order;
    (iii) The member firm must record all details of the order, 
including the price it has guaranteed its customer or that the entire 
order will be filled at no worse than the VWAP;
    (iv) The unfilled balance of the order that would be executed in 
Crossing Session III or Crossing Session IV must be at least 10,000 
shares;
    (v) The customer's order must be executed in Crossing Session III 
or Crossing Session IV at a price that ensures that the entire order is 
executed at a price that is no worse than the guaranteed price or the 
VWAP;
    (vi) Orders may be entered in Crossing Session III or Crossing 
Session IV between 4 p.m. and 6:30 p.m., and must be identified as 
either a Crossing Session III or Crossing Session IV order;
    (vii) Member firms would receive an immediate report of execution 
upon entering an order into Crossing Session III or Crossing Session 
IV;
    (viii) Orders may be entered into Crossing Session III for 
execution at prices outside the trading range in the subject security 
during the 9:30 a.m. to 4 p.m. trading session;
    (ix) Orders may not be entered into Crossing Session III or 
Crossing Session IV in a security that is subject to a trading halt at 
the close of the regular 9:30 a.m. to 4 p.m. trading session; and
    (x) At 6:30 p.m., the Exchange would print trades reported through 
Crossing Session III as guaranteed price coupled orders or in Crossing 
Session IV as VWAP executions.
2. Statutory Basis
    NYSE believes that the proposed rule change is consistent with 
Section 6 of the Act \8\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \9\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanisms of a free and open market and the 
national market system and, in general, to protect investors and the 
public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

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

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) \10\ and Rule 19b-4(f)(6) 
thereunder.\11\ 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    NYSE has asked the Commission to waive the five-day pre-filing 
notice requirement and the 30-day operative delay. The Commission 
believes such waiver is consistent with the protection of investors and 
the public interest because it would allow the Pilots to be operative 
without unnecessary delay.\12\ For this reason, the Commission 
designates the proposal to be operative upon filing with the 
Commission.
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    \12\ For purposes only of waiving the 30-day pre-operative 
period, the Commission has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
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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

[[Page 6486]]

     Send e-mail to [email protected]. Please include File 
Number SR-NYSE-2005-01 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-2005-01. 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 such 
filing will also be available for inspection and copying at the 
principal office 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-2005-01 and should be submitted on or before 
February 28, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-469 Filed 2-4-05; 8:45 am]
BILLING CODE 8010-01-P