[Federal Register Volume 70, Number 149 (Thursday, August 4, 2005)]
[Notices]
[Pages 44963-44966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4133]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52160; File No. SR-NYSE-2005-49]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto Relating To Removal of Size and Frequency 
Restrictions on Orders Entered Through Direct+ in Investment Company 
Units, Trust Issued Receipts and StreetTRACKS [supreg] Gold Shares

July 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 July 15, 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. On July 26, 
2005, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Exchange filed the proposed rule change as a ``non-
controversial'' rule change under Rule 19b-4(f)(6) under the Act,\4\ 
which rendered the proposal effective upon filing with the Commission. 
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\ In Amendment No. 1, the Exchange made non-substantive 
changes to the text of the proposed rule change.
    \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 would amend NYSE Rule 13 in order to 
eliminate the 10,000 share size restriction for orders entered through 
NYSE Direct+ [supreg] (``Direct+'') in Investment Company Units, as 
defined

[[Page 44964]]

in paragraph 703.16 of the Listed Company Manual, Trust Issued Receipts 
(such as HOLDRs), as defined in NYSE Rule 1200, streetTRACKS [supreg] 
Gold Shares, as defined in NYSE Rule 1300, and any other product 
subject to the same rules as Investment Company Units (collectively 
``ETFs''). In addition, the 30-second time restriction in NYSE Rule 
1005 is proposed to be eliminated for ETF orders entered through 
Direct+. Below is the text of the proposed rule change. Proposed 
additions are in italics and proposed deletions are in [brackets].
* * * * *
Rule 13. Definitions of Orders
* * * * *
Auto Ex Order
    Except as provided below, [A] an auto ex order is a 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 1000-1005.
    [Pursuant to a pilot program to run until December 23, 2004,] Auto 
ex 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), streetTRACKS [supreg] Gold Shares (as defined in Rule 
1300), or any product subject to the same rules as Investment Company 
Units 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.]
* * * * *

Rule 1005. Orders May Not Be Broken Into Smaller Amounts

    Except for orders in Investment Company Units (as defined in 
paragraph 703.16 of the Listed Company Manual), Trust Issued Receipts 
(as defined in Rule 1200), or streetTRACKS[supreg] Gold Shares (as 
defined in Rule 1300), or any product subject to the same rules as 
Investment Company Units, [A] 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.
* * * * *

Rule 1300. streetTRACKS[reg] Gold Shares

    (a) The provisions of this Rule 1300 series apply only to 
streetTRACKS[supreg] Gold Shares, which represent units of fractional 
undivided beneficial interest in and ownership of the streetTRACKS 
[supreg] Gold Trust. While streetTRACKS [supreg] Gold Shares are not 
technically Investment Company Units and thus are not covered by Rule 
1100, all other rules that reference ``Investment Company Units,'' as 
defined and used in [Para.] paragraph 703.16 of the Listed Company 
Manual, including, but not limited to Rules 13, 36.30, 98, 104, 460.10, 
and 1002[, and 1005] shall also apply to streetTRACKS [supreg] Gold 
Shares. When these rules reference Investment Company Units, the word 
``index'' (or derivative or similar words) will be deemed to be ``gold 
spot price'' and the word ``security'' (or derivative or similar words) 
will be deemed to be ``streetTRACKS [supreg] Gold Trust''.
    (b) As is the case with Investment Company Units, paragraph (m) of 
the Guidelines to Rule 105 shall also apply to streetTRACKS [supreg] 
Gold Shares. Specifically, Rule 105(m) shall be deemed to prohibit an 
equity specialist, his member organization, other member, allied member 
or approved person in such member organization or officer or employee 
thereof from acting as a market maker or functioning in any capacity 
involving market-making responsibilities in physical gold, gold futures 
or options on gold futures, or any other gold derivatives. However, an 
approved person of an equity specialist entitled to an exemption from 
Rule 105(m) under Rule 98 may act in a market making capacity, other 
than as a specialist in the streetTRACKS [supreg] Gold Shares on 
another market center, in physical gold, gold futures or options on 
gold futures, or any other gold derivatives.
    (c) Except to the extent that specific provisions in this Rule 
govern, or unless the context otherwise requires, the provisions of the 
Constitution, all other Exchange Rules and policies shall be applicable 
to the trading of streetTRACKS [supreg] Gold Shares on the Exchange. 
Pursuant to Exchange Rule 3 (``Security''), streetTRACKS [supreg] Gold 
Shares are included within the definition of ``security'' or 
``securities'' as those terms are used in the Constitution and Rules of 
the Exchange.
* * * * *

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

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

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

1. Purpose

Executions of ETF Orders in Direct+ Under Existing Rules

    With respect to ETFs, Direct+ currently provides for the automatic 
execution of straight limit orders (i.e. orders without tick 
restrictions) of 10,000 shares or less \5\ against trading interest 
reflected in the Exchange's published quotation. ETF orders capable of 
execution via Direct+ are defined in NYSE Rule 13 as ``auto ex'' 
orders. It is not mandatory that all eligible ETF limit orders be 
entered as auto ex orders; rather, the member organization entering the 
ETF order (or its customer if enabled by the member organization) can 
choose to enter an ETF 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 in an ETF by means of 
the SuperDot([supreg]) (``DOT'') system for representation in the 
auction market.
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    \5\ See Information Memorandum 03-28 (June 20, 2003) (Amendments 
to Direct+). The Commission approved increasing 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 
Nos. 47024 (December 18, 2002), 67 FR 79217 (December 27, 2002) (SR-
NYSE-2002-37) and 50828 (December 9, 2004), 69 FR 75579 (December 
17, 2004) (SR-NYSE-2004-66) (extending Direct+ through December 23, 
2005).
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    ETF Direct+ orders are entered through DOT with the indicator NX

[[Page 44965]]

added to identify the order as an auto ex order. The ETF auto ex order 
receives an automatic execution when its 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.\6\ The transaction report is returned through 
DOT to the member organization (or customer) that entered it.
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    \6\ See NYSE Rule 1000.
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    Current Direct+ rules restrict the frequency of entry of all auto 
ex orders including those in ETFs. An ETF 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 ETF order, 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.\7\
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    \7\ See NYSE Rule 1005.
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Proposed Rule Change

    In the hybrid market filings,\8\ the Exchange is proposing, among 
other things, to remove size and frequency restrictions on auto ex 
orders. However, in order to increase the ability of customers to 
automatically execute orders in ETFs, the Exchange is proposing to:
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    \8\ See Securities Exchange Act Release Nos. 50173 (August 10, 
2004), 69 FR 50407 (August 16, 2004); 50667 (November 15, 2004), 69 
FR 67980 (November 22, 2004); and 51906 (June 22, 2005), 70 FR 37463 
(June 29, 2005) (SR-NYSE-2004-05).
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    (i) Amend NYSE Rule 13 to eliminate the 10,000 share restriction 
for auto ex orders in ETFs; and
    (ii) Eliminate the 30-second frequency restriction in NYSE Rule 
1005 for orders in ETFs.

These proposals would be implemented prior to the implementation of the 
hybrid market.
    The Exchange believes that this proposed change should be 
implemented for ETFs because of their unique nature (i.e., they are 
derivatively priced in relation to the values of the underlying 
component securities, and the high degree of liquidity in ETFs), and to 
enable the Exchange to remain competitive with other market centers, 
where there are no size and frequency restrictions on orders in ETFs.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \10\ in particular, in that 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 proposed rule change also is 
designed to support the principles of Section 11A(a)(1),\11\ in that it 
seeks to assure economically efficient execution of securities 
transactions, make it practicable for brokers to execute investors' 
orders in the best market and provide an opportunity for investors' 
orders to be executed without the participation of a dealer.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78k-1(a)(1).
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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 inappropriate burden on competition 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 proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) by its terms, 
does not become operative for 30 days after the date of filing, or such 
shorter time as the Commission may designate, if consistent with the 
protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\12\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    As required under Rule 19b-4(f)(6)(iii),\14\ the Exchange provided 
the Commission with written notice of its intent to file the proposed 
rule change, along with a brief description and text of the proposed 
rule change, at least five business days prior to the date of the 
filing of the proposed rule change. The Exchange has requested that the 
Commission waive the 30-day operative delay to immediately expand the 
availability of Direct+ for orders in ETFs by eliminating order size 
and frequency restrictions. The Commission believes that waiver of the 
30-day operative delay is consistent with the protection of investors 
and the public interest, because this filing should enhance the 
execution of transactions in ETFs. For this reason, the Commission 
designates the proposal to be effective and operative upon filing with 
the Commission.\15\
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For the purposes only of accelerating the operative date of 
this proposal, 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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    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 the 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 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-2005-49 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE, 
Washington, DC 20549-9309.

    All submissions should refer to File Number SR-NYSE-2005-49. 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

[[Page 44966]]

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, 100 F Street, NE, 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-2005-49 and should be submitted on or before August 
25, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4133 Filed 8-3-05; 8:45 am]
BILLING CODE 8010-01-P