[Federal Register Volume 74, Number 58 (Friday, March 27, 2009)]
[Notices]
[Pages 13486-13488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-6828]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59613; File No. SR-NYSE-2009-27]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC
Amending NYSE Rule 124 To Execute the Odd-Lot Portion of a Part of a
Round-Lot Order Pursuant to the Same Pricing Methodology Used for Odd-
Lot Orders
March 20, 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 March 11, 2009, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III 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 NYSE Rule 124 (Odd-Lot Orders) to
execute the odd-lot portion of a part of a round-lot (``PRL'') order
pursuant to the same pricing methodology used for odd-lot orders.
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
New York Stock Exchange LLC (``NYSE'' or the ``Exchange'') proposes
to amend Exchange Rule 124 (Odd-Lot Orders) to execute the odd-lot
portion of a part of a round-lot (``PRL'') order pursuant to the same
pricing methodology used for odd-lot orders.\4\
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\4\ PRL orders are for a size within the standard unit (round-
lot) of trading, which is 100 shares for most stocks, but contains a
portion that is smaller than the standard unit of trading, e.g. 199
shares. It should be noted that for certain securities trading on
the NYSE the standard unit of trading is 10 shares.
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The Exchange notes that parallel changes are proposed to be made to
the rules of the NYSE Alternext Exchange (formerly the American Stock
Exchange).\5\
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\5\ See SR-NYSEALTR-2009-27 (to be filed March 11, 2009).
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Background
Currently, odd-lot orders on the Exchange are processed in a
separate system on the Exchange from the Exchange systems that execute
round-lot orders. Odd-lots are executed systemically by Exchange
systems designated solely for odd-lot orders (the ``Odd-lot
System'').\6\ The odd-lot System executes all odd-lot orders against
the DMM as the contra party.\7\
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\6\ See NYSE Rule 124(a).
\7\ Id. Odd-lot orders are in effect netted against one another
and executed; however, since the DMM is buying the same amount that
he or she is selling, there is no economic consequence to the DMM in
this type of pairing-off of orders. Any imbalance of buy or sell
odd-lot market orders are executed against the DMM, up to the size
of the round-lot transaction or the BID/OFFER size whichever is
less.
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Pursuant to NYSE Rule 124(c), after odd-lot market orders and
marketable odd-lot limit orders are received by the Odd-lot System,
they are automatically executed at the price of the next round-lot
transaction in the subject security on the Exchange. Specifically,
marketable odd-lot orders and marketable odd-lot limit orders are
executed in time priority of receipt at the price of the next round-lot
transaction, pursuant to the net process described in footnote 6 [sic].
The imbalance of marketable odd-lot orders that do not receive an
execution as a result of the netting provision are executed in time
priority of receipt at the price of the NBBO, subject to a volume
limitation.\8\ Any imbalances of odd-lot limit orders that were non-
marketable upon receipt that subsequently become marketable receive an
execution at their limit price.\9\ Marketable odd-lot orders which
would otherwise receive a partial execution pursuant to the volume
limitation are executed in full.\10\
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\8\ The volume limitation in section (c) of the rule is defined
as the lesser of either the number of shares in the last round-lot
transaction or the number of shares available at the national best
bid (in the case of an odd-lot order to sell), or the national best
offer (in the case of an odd-lot order to buy).
\9\ Pursuant to NYSE Rule 124(d) odd-lot limit orders that are
non-marketable upon receipt that become marketable are eligible to
be netted and executed at the price of the next round-lot
transaction. If odd-lot limit orders do not receive an execution
pursuant to the netting provision, then the orders are eligible to
be executed, at its limit price, subject to the volume limitation of
section (c) of the rule.
\10\ As with marketable odd-lot orders, non-marketable odd-lot
limit orders which would otherwise receive a partial execution will
be executed in full. Non-marketable odd-lot limit orders that become
marketable, that remain unexecuted within 30 seconds of receipt will
be executed, in time priority of receipt, except that the orders
will be executed at its limit price.
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Any marketable odd-lot orders that do not receive an execution
because of the volume limitation are executed, in time priority of
receipt at the price of the next round-lot transaction, following
pricing and execution procedures described above. Marketable odd-lot
orders (including odd-lot limit orders that were non-marketable upon
receipt and subsequently become marketable) that remain unexecuted
within 30 seconds of receipt will be executed, in time priority of
receipt, at the price of the NBBO (or at its limit price if the order
is a non-marketable odd-lot limit order upon receipt that has become
marketable). These orders are also subject to the volume limitation.
Marketable odd-lot orders and non-marketable odd-lot limit orders
that have become marketable and remain unexecuted prior to the close of
trading shall be executed, in time priority of receipt at the price of
the closing transaction, subject to the netting provision and a volume
restriction
[[Page 13487]]
which is not to exceed the size of the closing transaction.
The round-lot portion of a PRL is executed in the Exchange's round-
lot system and the odd-lot portion is executed in the Odd-lot System
only if no round-lot portion of the initial PRL order is cancelled.\11\
Where more than one round-lot transaction is required to effect the
complete execution of the round-lot portion of a PRL, the odd lot
portion is executed only if the entire round-lot portion(s) of the PRL
order as received by the Exchange is executed. Thereafter, the odd-lot
portion is executed at the same price as the last round-lot transaction
that is needed to completely execute all round-lot portions of the PRL.
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\11\ See NYSE Rule 124.40.
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Example
An order to sell 399 shares of security XYZ is received by Exchange
systems at 12:00:00. The 99 share portion of the order is eligible for
execution only after the 300 share portion of the PRL order is sold.
See table below.
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Number of Price of
Time of execution shares execution Customer receives
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12:00:01...................................... 100 $30.22 Report of Execution 100 shares
at a price of $30.22.
12:01:00...................................... 100 30.21 Report of Execution 100 shares
at a price of $30.22.
12:01:47...................................... 100 30.22 Report of Execution 199 shares
at a price of $30.22.
12:01:47...................................... 99 30.22
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Proposed Amendment to Partial Round Lot Pricing
The Exchange believes that the most appropriate way to execute odd-
lot orders is to represent them in the round-lot auction market where
they would interact with all other market interest and be priced in
accordance with supply and demand dynamics. The Exchange is committed
to the goal of integrating odd-lots into the round-lot market; however,
the technical changes required to offer its customers the speed of
electronic trading while preserving the benefits of having human-
moderated trading did not afford the Exchange the ability to modify its
systems to integrate odd-lots in the round-lot market.
The pricing methodology of Exchange Rule 124 has been amended as an
interim measure to accommodate the pricing and execution of odd-lot
orders in a manner based on the prevailing market.\12\ More recently in
2007, when the Exchange modified its odd-lot pricing, Exchange systems
were unable to execute the odd-lot portions of PRL orders consistent
with odd-lot orders that do not contain a round-lot component.
Specifically, in order to price the odd-lot portion of a PRL order
pursuant to NYSE Rule 124, Exchange legacy systems responsible for
sequencing order execution needed, but were unable to handle a number
of variables necessary to track the odd-lot portion of a PRL order in
the event a customer sought to cancel or replace his or her PRL. This
systemic impediment required the Exchange to handle the execution of
the odd-lot portion of a PRL differently from other odd-lot orders to
ensure that customers were able to efficiently execute their PRL orders
and receive timely information about the orders' status. Today,
significant upgrades to the Exchange's technology \13\ now make it
possible for Exchange systems to price all odd-lot orders consistent
with the provisions NYSE Rule 124(c) and (d).
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\12\ See Securities Exchange Act No. 56551 (September 27, 2007),
73 FR 56415 (October 3, 2007)(SR-NYSE-2007-82); See also Securities
Exchange Act No. 49536 (April 7, 2004), 69 FR 19890, 19893 (April
14, 2004) (SR-NYSE-2003-37); Securities Exchange Act No. 49745 (May
20, 2004), 69 FR 29998 (May, 26, 2004) (SR-NYSE-2003-37).
\13\ See Securities Exchange Act Release No. 58184 (July 17,
2008), 73 FR 42853 (July 23, 2008) (SR-NYSE-2008-46). (One of the
key changes was enhancing the Exchange's technology.)
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The Exchange therefore proposes to amend NYSE Rule 124.40 to allow
the odd-lot portion of PRLs to be executed in the Odd-lot System
pursuant to the pricing provisions of NYSE Rule 124. The Exchange will
continue to execute the odd-lot component of a PRL only if the entire
round-lot portion(s) of the order as received by Exchange system is
executed. The odd-lot portion of the PRL will retain the time stamp of
its original entry as a PRL and would be sequenced for execution based
on its initial entry time. Once all round lot components of the PRL are
fully executed, the odd-lot portion of the order will be executed at a
price consistent with other odd-lot orders subject to the provisions of
NYSE Rule 124(c) and (d).
Example
A marketable order to sell 399 shares of security XYZ is received
by Exchange systems at 12:00:00. The 99 share portion of the order is
eligible for execution only after the 300 share portion of the PRL
order is sold. See table below.\14\
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\14\ This example assumes that the odd-lot portion of the PRL
had priority of execution in the Odd-lot system because its original
order entry time was 12:00:00.
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Number of Price of
Time of execution shares execution Customer receives
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12:00:01...................................... 100 $30.22 Report of Execution 100 shares
at a price of $30.22.
12:01:00...................................... 100 30.21 Report of Execution 100 shares
at a price of $30.21.
12:01:47...................................... 100 30.22 Report of Execution 100 shares
at a price of $30.22.
12:01:48...................................... 99 30.23 Report of Execution 99 shares at
a price of $30.23.
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The Exchange proposed amendment to NYSE Rule 124.40, will ensure
that all odd-lots executed on the Exchange receive consistent pricing
regardless of whether the order is received as an odd-lot order or a
PRL.
The Exchange will commence implementation of the proposed systemic
change to execute the odd-lot portion of a PRL order pursuant to the
same pricing methodology used for odd-lot orders on or about March 16,
2009. The Exchange intends to progressively implement this systemic
change for PRLs on a security by security basis as it gains experience
with the new technology until it is operative in all securities traded
on the Floor. During the implementation, the Exchange will identify on
its Web site which securities
[[Page 13488]]
have been transitioned to the new system.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \15\ 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 instant proposal is in keeping
with these principles in that it seeks to price the execution of all
odd-lot orders pursuant to one pricing methodology now that the
Exchange systemic impediments to the implementation of one pricing
methodology are removed.
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\15\ 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
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
The proposed rule change is filed pursuant to paragraph (A) of
Section 19(b)(3) \16\ and Rule 19b-4(f)(5).\17\ This proposed rule
change effects a change in an existing order entry or trading system of
a self-regulatory organization that: (A) Does not significantly affect
the protection of investors or the public interest; (B) does not impose
any significant burden on competition; and (C) does not have the effect
of limiting the access to or availability of the system. The proposed
filing does not in any way limit access to the Exchange's odd-lot
system; rather, the changes are the result of technological
advancements which remove the systemic impediments that previously
restricted the Exchange's ability to execute all odd-lots pursuant to a
the same pricing methodology. In so far as, the proposal ensures that
all odd-lot orders are priced in the same manner, it promotes the
protection of investors and serves the public interest without imposing
a significant burden on competition.
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(5).
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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 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-2009-27 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-2009-27. 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 the 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-2009-27 and should be
submitted on or before April 17, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Florence E. Harmon,
Deputy Secretary.
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\18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E9-6828 Filed 3-26-09; 8:45 am]
BILLING CODE