[Federal Register Volume 70, Number 160 (Friday, August 19, 2005)]
[Notices]
[Pages 48792-48794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4535]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52255; File No. SR-NYSE-2005-54]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change To Amend NYSE Rule 123C 
(Market on the Close Policy and Expiration Procedures) To Eliminate the 
Requirement To Publish Pre-Opening Market Order Imbalances on 
Expiration Fridays

August 15, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 26, 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, 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 proposed rule change seeks to amend NYSE Rule 123C (Market on 
the Close Policy and Expiration Procedures) to eliminate the 
requirement to publish pre-opening market order imbalances on 
expiration Fridays.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in [brackets].

Market on the Close Policy and Expiration Procedures

Rule 123C
* * * * *
(6) Expiration Friday Auxiliary Procedures for the Opening
    The Exchange adopted monthly auxiliary procedures for expiration 
days in order to integrate stock orders relating to expiring index 
contracts into the NYSE's opening procedures in a manner that will 
assure an efficient market opening in each stock as close to 9:30 a.m. 
as possible. An expiration day is a trading day prior to the expiration 
of index-related derivative products (futures, options or options on 
futures), whose settlement pricing is based upon opening or closing 
prices on the Exchange, as identified by a qualified clearing 
corporation (e.g., the Options Clearing Corporation). The twelve 
expiration days are ``expiration Fridays'' which fall on the third 
Friday in every month. If that Friday is an Exchange holiday, there 
will be an expiration Thursday in such a month.
Order Entry
    Stock orders relating to index contracts whose settlement pricing 
is based upon the ``Expiration Friday's'' opening prices must be 
received by SuperDOT or by the specialist by 9 a.m.
     These orders may be cancelled or reduced in size. Firms 
cancelling these orders or reducing them in size shall prepare 
contemporaneously a written record describing the rationale for the 
change and shall preserve it as Rule 410 provides.
     Stock orders relating to index contracts whose settlement 
pricing is not based upon the ``Expiration Friday's'' opening prices 
may be entered before or after 9 a.m.
    To facilitate early order entry, SuperDOT (a) will begin accepting 
orders at 7:30 a.m. and (b) will accept orders of 500,000 shares or 
less.
    ``Limit at the opening'' (``limit OPG'') orders are permitted, 
including delivery through Exchange systems.
     Ordinary limit orders may also be entered.
Order Identification
    Stock orders relating to opening-price settling contracts must be 
identified ``OPG''.
     Firms entering these orders through SuperDOT, but unable 
to identify orders as ``OPG,'' may use a unique branch code or firm 
identifier (mnemonic) to identify these orders.
     Firms unable to identify these orders in either way, and 
firms not using SuperDOT, must submit a list of all these orders and 
related details to the NYSE Market Surveillance Division.

[[Page 48793]]

[Dissemination of Order Imbalances] Applicability of Regular Opening 
Procedures
    [On Expiration days, for any stocks having a market order imbalance 
of 50,000 shares or more at 9 a.m., the NYSE will disseminate the size 
of the order imbalance via the low-speed ticker and the news services 
as promptly as practicable after 9 a.m.]
    Except for the auxiliary procedures described above, all stocks are 
subject to the regular NYSE opening procedures, including price 
indications where a substantial price change is anticipated. Ten 
minutes must elapse between a first indication and a stock's opening. 
However, when more than one indication is necessary, a stock may open 
five minutes after the last indication provided that ten minutes must 
have elapsed from the dissemination of the first indication.
* * * * *

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. The 
text of these statements may be examined at the places specified in 
Item IV below. NYSE 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
    NYSE Rule 123C (Market on the Close Policy and Expiration 
Procedures) contains requirements with respect to operation of the 
Exchange's market concerning market-on-close (``MOC'') and limit-on-
close (``LOC'') orders as well as order entry and imbalance publication 
requirements for use on expiration days. An ``expiration day'' as 
defined in NYSE Rule 123C is ``a trading day prior to the expiration of 
index-related derivative products (futures, options or options on 
futures), whose settlement pricing is based upon opening or closing 
prices on the Exchange, as identified by a qualified clearing 
corporation (e.g., the Options Clearing Corporation). The twelve 
expiration days are `expiration Fridays' which fall on the third Friday 
in every month.'' On these expiration days, the Exchange has specific 
requirements governing the entry of orders in stocks relating to index 
contracts whose settlement prices are based on the opening prices on 
the Exchange of the stocks comprising the indices. Stock orders 
relating to index contracts whose settlement pricing is based upon the 
expiration Friday's opening prices must be received by SuperDOT[reg] or 
by the specialist by 9 a.m. and must be identified as pertaining to 
opening-price settling contracts by placing the letters ``OPG'' on the 
order.
    Both market and limit orders in stocks which are part of an 
expiring index whose settlement is based on NYSE opening prices may be 
entered on expiration Fridays. Market and limit orders may also be 
entered with respect to stocks that are not part of an expiring index 
whose pricing is based on NYSE opening prices. Under NYSE Rule 123C(6), 
the Exchange publishes informational order imbalances, as promptly as 
possible after 9 a.m., only with respect to the imbalance of buy and 
sell market orders, and does not include buy and sell limit orders 
entered up to that time for execution at the opening. On occasion, this 
practice of publishing only pre-opening market order imbalances has 
prompted observations from some market participants that this may 
provide misleading information, since the imbalances disseminated may 
not show the true imbalance situation in a stock, especially in those 
stocks that are part of an expiring index whose settlement is based on 
NYSE opening prices, since limit orders are not included in the 
imbalance publication.
    To address these concerns, the Exchange proposes to eliminate the 
publication of pre-opening market order imbalances on expiration 
Fridays. The Exchange believes that, based on input from its market 
participants, the publication of only market order imbalances does not 
provide useful information, especially with respect to those stocks 
which are part of an expiring index whose settlement is based on NYSE 
opening prices on one of those days. To calculate an imbalance using 
pre-opening limit orders, reference prices at various points would have 
to be used to determine whether the limit order would be marketable, 
that is, whether, based on the reference price, the limit order could 
be executed. The Exchange's systems are not able to show pre-opening 
limit order imbalances in this manner and, thus, the Exchange cannot 
expand the imbalance publications to include limit orders.
    The Exchange will, however, continue to utilize its pre-opening 
procedures with respect to price indications in situations where the 
opening price would be affected by an imbalance of buy and sell orders, 
both market and limit orders, in a security. These procedures, as set 
forth in NYSE Rule 123D (Openings and Halts in Trading), provide ample 
notification to the marketplace through multiple price indications if 
necessary under the supervision of a Floor Official. In addition, 
Intermarket Trading System procedures contained in NYSE Rule 15 (ITS 
and Pre-Opening Applications) require pre-opening price notifications 
if the opening price of a stock is anticipated to be more than .10 of a 
point from a composite last sale under $15 or more than .25 of a point 
from a composite last sale of $15 or higher. These procedures set forth 
in NYSE Rules 123D and 15 have proven effective in providing adequate 
and useful information to the marketplace in situations involving price 
changes based on order imbalances and the Exchange believes they will 
continue to do so.
2. Statutory Basis
    The Exchange believes that the basis under the Act for this 
proposed rule change is the requirement under Section 6(b)(5) \3\ that 
an Exchange have rules that are 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.
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    \3\ 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

    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 shall:

[[Page 48794]]

    (A) By order approve such 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 No. SR-NYSE-2005-54 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NYSE-2005-54. 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 Commissions 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 also will 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-2005-54 and should be submitted on or before 
September 9, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-4535 Filed 8-18-05; 8:45 am]
BILLING CODE 8010-01-P