[Federal Register Volume 74, Number 8 (Tuesday, January 13, 2009)]
[Notices]
[Pages 1746-1749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-415]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59207; File No. SR-NYSE-2008-134]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Exchange Rule 1500 (``MatchPoint'') To Clarify the 
Functionality of the Intra-Day Matching Sessions in Relation to Order 
Entry, Correction and Cancellation Capabilities, and When the 
MatchPoint System Cancels Unexecuted Orders Back to the User and 
Disseminates Intra-Day and After Hours Trade Reports

January 6, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on December 22, 2008, New York Stock Exchange LLC (``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 self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 Exchange proposes to amend Exchange Rule 1500 (NYSE 
MatchPoint\SM\) (``MatchPoint'') to clarify the functionality of the 
intra-day matching sessions in relation to order entry, correction and 
cancellation capabilities, and when the MatchPoint system cancels 
unexecuted orders back to the User and disseminates intra-day and after 
hours trade reports. The text of the proposed rule change is available 
at http://www.nyse.com, NYSE, and the Commission's Public Reference 
Room.

[[Page 1747]]

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 self-regulatory organization 
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 those 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 parts of such statements.

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

1. Purpose
    The Exchange seeks to amend Exchange Rule 1500 (``NYSE 
MatchPoint'') to clarify the functionality of the intra-day matching 
sessions, and the timing of the dissemination of intra-day and after 
hours trade reports and when unexecuted orders are cancelled back to 
the User (i.e., those customers entering orders into MatchPoint). 
Intra-day matching sessions begin at 9:45 a.m., 10:00 a.m., 11:00 a.m., 
12:00 p.m., 1:00 p.m., 2:00 p.m. and 3:00 p.m. A MatchPoint after hours 
matching session occurs at 4:45 p.m.
    The MatchPoint rule provides that a User can only enter, correct 
and cancel an order prior to commencement of a pre-determined one-
minute matching session (see subsection (d)(2) of Rule 1500). However, 
subsequent to the September 2008 launch of the intra-day matching 
sessions, Exchange staff became aware that the MatchPoint system 
permits orders to be entered, corrected and cancelled during the one-
minute intra-day matching sessions up to and including the time the 
algorithm randomly selects the Reference Price and commences the 
``matching process.'' The ``matching process'' continues with the 
execution of orders and allocation of executed shares among the orders. 
MatchPoint orders cannot be entered, corrected or cancelled once the 
``matching process'' has commenced.
    For example, in the intended MatchPoint model, if a User entered an 
order into the MatchPoint system at 10:00:05 a.m. (5 seconds after the 
commencement of the 10:00 a.m. matching session), such order would be 
rejected by the MatchPoint system as untimely, and the order would not 
participate in the 10:00 a.m. matching session. However, as the system 
is functioning today, the User is able to enter, correct or cancel an 
order up to and including the time that the MatchPoint algorithm 
randomly selects the Reference Price and commences the matching 
process. Therefore, if a User enters a MatchPoint order into the 
MatchPoint system after the commencement of the 10:00 a.m. matching 
session at 10:00:05, the order may participate in the 10:00 a.m. 
matching session as long as the order is entered prior to the time the 
MatchPoint algorithm randomly selects the Reference Price and commences 
the matching process. Thus, if the Reference Price in this example is 
randomly selected at 10:00:10, the order that was entered at 10:00:05 
will participate in the 10:00 matching session, but an order entered at 
10:00:20 will not participate in the 10:00 matching session and will be 
rejected as untimely and cancelled back to the User. Thus, to be 
assured participation in the 10:00 a.m. matching session, a User must 
enter a MatchPoint order into the system anytime prior to the 
commencement of the 10:00 a.m. matching session.
    The proposed rule change will clarify that the User may enter, 
correct or cancel an order up to and including the time that the 
MatchPoint algorithm randomly selects the Reference Price and commences 
the matching process. The Exchange believes the manner in which the 
MatchPoint intra-day matching process currently functions is 
appropriate in that it provides customers with a greater ability to 
manage orders because the orders are not necessarily held in the 
MatchPoint system for the entire one-minute session, and the customers 
are able to react more quickly to the market. Further, more customers 
may have the opportunity to enter, correct or cancel orders for a 
particular matching session in a timely fashion without having to wait 
a full hour for the next matching session to commence.
    Additionally, the Exchange seeks to amend and clarify subsection 
(b)(2)(F) of NYSE Rule 1500 (``NYSE MatchPoint Orders'') to reflect the 
actual functionality of the MatchPoint system and to conform this 
subsection with the other proposed amendments to the Rule. In the 
intra-day and after hours MatchPoint matching sessions, the cancelling 
back of unexecuted orders and dissemination of trade reports actually 
occur immediately after completion of the ``matching process'' and not 
after completion of the ``matching session.'' Therefore, the definition 
of NYSE MatchPoint orders will include language that indicates that 
unexecuted orders will be cancelled back to the User ``immediately upon 
completion of the matching process in the relevant one-minute matching 
session,'' and that trade reports will be disseminated immediately 
after completion of the ``matching process.'' \4\
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    \4\ See proposed NYSE Rule 1500 (c)(1).
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    Additionally, the Exchange seeks to amend and clarify subsections 
(c)(1)(B) and (c)(1)(C) of NYSE Rule 1500 regarding MatchPoint intra-
day matching sessions when the market is crossed. The MatchPoint rule 
provides the following:

    (B) If the NBBO for a particular security is locked at the time 
of a MatchPoint matching session during the regular trading hours of 
the Exchange, the matching session shall execute orders at the 
locked price. Unexecuted MatchPoint orders in that security shall be 
immediately cancelled back to the User upon completion of the 
matching session.
    (C) If the NBBO for a particular security is crossed at the time 
of a MatchPoint matching session during the regular trading hours of 
the Exchange, the matching session in that particular security shall 
not occur. Unexecuted MatchPoint orders in that security shall be 
immediately cancelled back to the User upon completion of the 
matching session.

    The Exchange is proposing to amend the rule text in subsections 
(c)(1)(B) to clarify that during any intra-day matching session, the 
MatchPoint system will execute orders at the locked price when the 
market is locked at the time the MatchPoint algorithm randomly selects 
the Reference Price and commences the matching process--and not at the 
commencement of the particular matching session. Further, the proposed 
text will indicate that unexecuted orders will be cancelled back to the 
User immediately upon completion of the ``matching process''--and not 
at the completion of the ``matching session.''
    The Exchange is proposing to amend the rule text in subsections 
(c)(1)(C) to clarify that during any intra-day matching session, if the 
NBBO for a particular security is crossed at the time the ``MatchPoint 
algorithm randomly selects the Reference Price,'' the matching session 
in that particular security will not occur, and unexecuted orders will 
be cancelled back to the User immediately upon completion of the 
``matching process''--and not at the completion of the ``matching 
session.''
    The Exchange believes that the way the MatchPoint system currently 
functions in relation to the dissemination of trade reports, crossed 
markets and the time the unexecuted orders are cancelled back to the 
User are beneficial functionalities for all customers. These 
functionalities will,

[[Page 1748]]

among other things, provide customers with more immediate information 
regarding the processing of their orders and enable them to better 
manage their order flow. The immediacy of this information allows the 
customer to respond more quickly and more strategically to the movement 
of the market.
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Act'') 
\5\ for this proposed rule change is the requirement under Section 
6(b)(5) \6\ 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. 
The Exchange believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act because it clarifies the 
operation of the MatchPoint trading platform in relation to order 
entry, correction and cancellation capabilities during the intra-day 
matching sessions, and when the MatchPoint system cancels unexecuted 
orders back to the User and disseminates intra-day and after hours 
trade reports.\7\ By clarifying these functionalities of the MatchPoint 
trading platform, a trading platform that is available to all members 
of the Exchange and those non-members who are authorized to access the 
platform as a Sponsored Participant, the proposed rule change promotes 
just and equitable principles of trade, removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system, and, in general, protects investors and the public interest.\8\
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    \5\ 15 U.S.C. 78f(a).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ See e-mail, dated January 6, 2009, from Jean Walsh, Managing 
Director, NYSE, to Nathan Saunders, Special Counsel, and Steve 
Varholik, Attorney, Division of Trading and Markets, Commission.
    \8\ See id.
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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

    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 \9\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    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.\11\ However, Rule 19b-4(f)(6)(iii) \12\ permits the Commission 
to designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange requested 
that the Commission waive the 30-day operative delay and designate the 
proposed rule change to become operative upon filing. The Exchange 
believes that the operative date should be waived so that NYSE Rule 
1500 will accurately reflect the technological functioning of the 
MatchPoint system and will immediately provide customers transparency 
regarding how their MatchPoint orders are being processed. The Exchange 
believes this will permit customers to better manage their order flow 
and trading decisions by being able to rely on the MatchPoint system.
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    \11\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the self-regulatory organization to give the 
Commission 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 filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. NYSE has satisfied this requirement.
    \12\ Id.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. In 
particular, the Commission believes that the proposed rule change 
should clarify the functioning of MatchPoint intra-day matching 
sessions in relation to automated order entry, correction and 
cancellation capabilities, when locked and crossed markets are 
identified, when the MatchPoint system cancels unexecuted orders back 
to the User, and when the system disseminates intra-day and after hours 
trade reports. The Commission further believes that investors should 
have access to accurate information regarding how their MatchPoint 
orders are being processed without delay. Accordingly, the Commission 
designates the proposed rule change to be operative upon filing with 
the Commission.\13\
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    \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).
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    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-NYSE-2008-134 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2008-134. 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 1749]]

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 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-2008-134 and should be submitted on or before 
February 3, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-415 Filed 1-12-09; 8:45 am]
BILLING CODE 8011-01-P