[Federal Register Volume 73, Number 132 (Wednesday, July 9, 2008)]
[Notices]
[Pages 39365-39367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-15512]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58079; File No. SR-NYSEArca-2008-69]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Permit the Use 
of a New Order Type Known as Price Improving Orders and Quotes

July 2, 2008.
    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 June 25, 2008, NYSE Arca, Inc. (``NYSE Arca'' 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 substantially prepared by the Exchange. NYSE Arca designated 
the proposed rule change as ``non-controversial'' under Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposal effective upon filing with the Commission. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend various rules to permit the use of a 
new order type known as Price Improving Orders and Quotes that may be 
submitted in increments as small as one cent, and to govern their use. 
The text of the proposed rule change is available at the Exchange, the 
Commission's Public Reference Room, and http://www.nyse.com.

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
    The purpose of this rule change is to permit all authorized 
Exchange participants to submit Price Improving Orders and Quotes in 
increments smaller than the minimum price variation (``MPV'') in the 
security. The Exchange will designate the classes/series eligible for 
this penny pricing, and the penny pricing will be available 
electronically and in open outcry.
    Price Improving Orders and Quotes will allow market participants to 
submit an order priced between the MPV that will be rounded to the 
nearest lower MPV bid or the nearest higher MPV offer for display, but 
would maintain the one-cent increment limit for trade allocation 
purposes. Without this order type, market participants would not be 
able to submit orders priced between the disseminated MPV. However, 
since the orders will be displayed in aggregate at the nearest MPV, the 
order type will not ``take away'' transparency that would already 
exist. Incoming market and marketable limit orders will receive price 
improvement when executed against Price Improving Orders or Quotes 
resting in the Consolidated Book. For example, where the NYSE Arca 
market is 1.00-1.20 and an order is received to buy 10 contracts at 
1.08, NYSE Arca would disseminate a 1.05 bid for 10 contracts, and any 
subsequent sell market order received by the Exchange would trade at 
1.08 for up to 10 contracts (after which the quote would revert back to 
1.00-1.20).
    The Exchange also proposes to allow OTP Holders to execute Price 
Improving Orders in open outcry in one-cent increments and to allow 
Market Makers to respond to a call for a market with bids and offers in 
one-cent increments. However, the Exchange will require OTP Holders, 
prior to effecting any transactions in open outcry in one-cent 
increments, to electronically ``sweep'' any Price Improving Orders or 
Quotes in the NYSE Arca System. The ``sweep'' would ensure that better-
priced orders resting in one-cent increments are executed prior to the 
open outcry transaction and would also ensure that same priced orders 
receive executions consistent with existing rules governing priority of 
orders in the Consolidated Book when trading with an order represented 
in open outcry (NYSE Arca Rules 6.47 and 6.75).
    The applicability of split-price priority under NYSE Arca Rule 
6.75(h) to transactions effected under proposed

[[Page 39366]]

NYSE Arca Rule 6.73(b) would be determined by the Exchange, and the 
mechanics of split-price priority in those instances would be the same 
as the mechanics of split-price priority in five- and ten-cent 
increments.
    In addition, open outcry penny pricing would generally be available 
in instances where a Floor Broker is attempting to cross an order 
pursuant to NYSE Arca Rule 6.47(a) through (d). However, it would not 
be available in those instances where a Floor Broker is utilizing the 
Exchange's Size Quote Mechanism (NYSE Arca Rule 6.47(f)).
    The Exchange believes that this order type will provide investors 
the opportunity to trade at a better price than otherwise would be 
available--inside the disseminated best bid and offer for a security. 
The Exchange also believes that this order type may serve to increase 
liquidity to the extent that market participants find the order type 
results in better executions. Further, market participants may be 
incented to compete by putting forth their best price--priced in a 
penny increment--to potentially match or better any other trading 
interest resident in the system. This may result in more aggressive, 
rather than less aggressive, trading interest.
    This rule change is based on Chapter VI, Section 1(e)(6) and 
Section 5 of the NASDAQ Options Rules \5\ and Chicago Board Options 
Exchange Rule 6.13B.\6\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 57478 (March 12, 
2008) 73 FR 14521 (March 18, 2008) (order approving SR-NASDAQ-2007-
004, as modified by Amendment 2, and SR-NASDAQ-2007-080).
    \6\ See Securities Exchange Act Release No. 57716 (April 25, 
2008), 73 FR 24329 (May 2, 2008) (SR-CBOE-2007-39) (order approving 
CBOE-2007-39 as modified by Amendment No. 2).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
and furthers the objectives of Section 6(b)(5) of the Act, in that it 
is designed to promote just and equitable principles of trade, remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the 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 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 \7\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\8\ As required under Rule 19b-4(f)(6)(iii),\9\ NYSE 
Arca 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 5 days prior to the filing of the 
proposed rule change.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to the 30th day after the date of 
filing.\10\ However, Rule 19b-4(f)(6)(iii) \11\ permits the Commission 
to designate a shorter time if such action is consistent with the 
protection of investors and the public interest. NYSE Arca requested 
that the Commission waive the 30-day operative delay and make the 
proposed rule change operative upon filing because the proposal is 
similar to rules on the Chicago Board Options Exchange and the NASDAQ 
Options Market,\12\ raises no new issues, and will allow NYSE Arca to 
compete for Price Improving Orders and Quotes. For these reasons, the 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission designates the proposed rule change 
operative upon filing with the Commission.\13\
---------------------------------------------------------------------------

    \10\ See id.
    \11\ Id.
    \12\ See supra notes 5 and 6.
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the 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 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-NYSEArca-2008-69 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2008-69. 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, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the NYSE Arca. 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-NYSEArca-2008-69 and

[[Page 39367]]

should be submitted on or before July 30, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-15512 Filed 7-8-08; 8:45 am]
BILLING CODE 8010-01-P