[Federal Register Volume 74, Number 136 (Friday, July 17, 2009)]
[Notices]
[Pages 34826-34829]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17016]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60290; File No. SR-NYSEAmex-2009-39]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by NYSE Amex LLC Amending NYSE
Amex Equities Rules 60, 70 and 1000 To Reflect Modifications to the
Manner in Which the Exchange Will Quote and Trade With Respect to
Liquidity Replenishment Points
July 10, 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 July 9, 2009, NYSE Amex LLC (the ``Exchange'' or ``NYSE
Amex'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Exchange filed the proposed rule change pursuant to
Section 19(b)(3)(A) of the Act \4\ and Rule 19b-4(f)(6) thereunder,\5\
which renders it effective upon filing with the Commission. 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.
\4\ 15 U.S.C. 78s(b)(3)(A).
\5\ 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 Exchange proposes to amend NYSE Amex Equities Rules 60
(Dissemination of Quotations), 70 (Execution of Floor Broker Interest)
and 1000 (Automatic Executions) to reflect modifications to the manner
in which the Exchange will quote and trade with respect to Liquidity
Replenishment Points. 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 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
NYSE Amex proposes to amend Exchange Rules 60 (Dissemination of
Quotations), 70 (Execution of Floor Broker Interest) and 1000
(Automatic Executions) to reflect modifications to the manner in which
the Exchange will quote and trade with respect to Liquidity
Replenishment Points (``LRPs'').\6\ As proposed, LRPs will convert the
Display Book to an auction market by causing autoquote to be suspended
only when an LRP is reached that will result in a locked or crossed
market condition on the Exchange or with respect to an away market
center (``lock/cross'') or where the next action required is to
consummate a trade. Once the locked/crossed condition is cleared or the
required trade is consummated, the automatic quoting and executions
will resume immediately without any pre-set timing delays. As such, the
proposal will allow Exchange systems to quote interest through an LRP
price point without converting the Exchange market to an auction market
where the next required action is simply to quote the interest.
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\6\ LRPs are pre-determined price points that temporarily
convert the automatic Exchange market to an auction market in order
to dampen volatility when the market is experiencing a large price
movement based on a security's typical trading characteristics or
market conditions over short periods of time during the trading day.
LRPs allow the DMM to solicit additional liquidity.
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The Exchange notes that parallel changes are proposed to be made to
the rules of the New York Stock Exchange (``NYSE'').\7\
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\7\ See SR-NYSE-2009-68 (to be filed July 9, 2009). NYSE
Euronext acquired The Amex Membership Corporation (``AMC'') pursuant
to an Agreement and Plan of Merger, dated January 17, 2008 (the
``Merger''). See Securities Exchange Act Release No. 58673
(September 29, 2008), 73 FR 57707 (October 3, 2008) (SR-NYSE-2008-60
and SR-Amex-2008-62) (approving the Merger). The effective date of
the Merger was October 1, 2008. In connection with the Merger, the
Exchange's predecessor, the American Stock Exchange LLC (``Amex''),
a subsidiary of AMC, became a subsidiary of NYSE Euronext called
NYSE Alternext US LLC, and continues to operate as a national
securities exchange registered under Section 6 of the Securities
Exchange Act of 1934, as amended (the ``Act''). See 15 U.S.C. 78f.
NYSE Alternext US LLC was subsequently renamed NYSE Amex LLC. See
Securities Exchange Act Release No. 59575 (March 13, 2009), 74 FR
11803 (March 19, 2009) (SR-NYSEALTR-2009-24).
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a. Background
The Exchange uses LRPs to temporarily convert the automatic
Exchange market to an auction market in order to dampen volatility when
the market is experiencing a large price movement based on a security's
typical trading characteristics or market conditions over short periods
of time during the trading day. For example, a large-sized order on one
side of the market, or a series of orders that will trade beyond the
current market could cause the price of a security to move to its
current LRP value. Conversion to an auction market as a result of an
LRP allows the Exchange to solicit additional liquidity.
Floor broker interest with discretionary trading instructions (``d-
Quotes'') is prohibited from triggering an LRP. Specifically, a d-Quote
participating in a sweep transaction cannot use its price discretion to
trade at a price that would trigger an LRP.\8\ d-Quotes were designed
in this manner so they would not cause the Exchange's market to ``go
slow'' by triggering an LRP. It should also be noted that a d-Quote
cannot cause a lock/cross market because the d-Quote only trades at
prices within its designated discretion but does not quote at a price
using its price discretion.
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\8\ Exchange systems automatically prevent a d-Quote from using
its price discretion to trade at an LRP price.
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b. Functioning of Autoquote and Auomatic [sic] Executions
Autoquote is a part of the Display Book[supreg] \9\ that
immediately displays
[[Page 34827]]
customer limit orders received on the Exchange. When autoquote is
suspended, it is suspended on both sides of the market. The Exchange
will publish a ``slow'' quote (i.e., one that is not eligible for
automatic execution) when autoquote is suspended. The Exchange can also
publish a slow quote on one side of the market, under certain market
conditions, such as when there is no interest on one side of the
market.
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\9\ The Display Book[supreg] system is an order management and
execution facility. The Display Book system receives and displays
orders to the DMMs, contains the Book, and provides a mechanism to
execute and report transactions and publish the results to the
Consolidated Tape. The Display Book system is connected to a number
of other Exchange systems for the purposes of comparison,
surveillance, and reporting information to customers and other
market data and national market systems.
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Pursuant to NYSE Amex Equities Rule 60, autoquote is suspended when
an LRP is reached and resumes in no more than ten seconds after the LRP
is reached. Specifically, NYSE Amex Equities Rule 60(d)(ii)(C) provides
that autoquoting is suspended when an LRP is reached, that is, if an
automatic execution would take place at or beyond an LRP. When
autoquoting is suspended in this situation, the Display Book ``goes
slow'', i.e., quotes and trading in that security do not take place
automatically. Pursuant to current Rule 60, autoquoting will resume in
no more than ten seconds (but usually in five seconds) after an LRP is
reached. Autoquoting resumes unless there is interest on the Display
Book system that would lock/cross the market. In such case, autoquoting
will resume following a manual transaction.
For example, if the market on the Exchange for a security is 20.10
bid and 20.15 offered. The designated LRP for this security is at a
price of 20.15 on the offer side. A buy order is received to lift the
offer at 20.15. Exchange systems will execute the buy order against the
interest at 20.15 and then suspend autoquote. Autoquote resumes in no
more than ten seconds unless there is interest on the NYSE Amex Display
Book system that would lock/cross the market. An example of this would
be if in the same market situation after autoquote suspended, interest
arrived to sell below the bid price (e.g., sell at 20.09 or below), the
market would be ``crossed''. In such case, autoquote will resume after
a manual transaction, conducted by the DMM to trade out of the cross
market and resume automatic quoting.
Similarly, pursuant to NYSE Amex Equities Rule 1000(a)(iv),
automatic executions are suspended when an LRP is reached, and resume
pursuant to the same parameters for the resumption of autoquote.
Automatic executions on the Exchange are suspended when autoquote is
suspended. In certain instances, autoquote is available to disseminate
a slow quote. This may occur on either the bid or offer side or both
sides of the market. In instances when autoquote is disseminating a
slow quote, auto executions will not be available against the quote
that is slow.
Pursuant to current NYSE Amex Equities Rules, once an LRP is
reached interest may not quote through the price point. For example the
Exchange market is 500 shares bid 20.10 and 300 shares offered at
20.15. The designated LRP for this security is at a price of 20.15 on
the offer side. An order to buy 600 shares with a limit price of 20.16
is received. There is no interest offered on the Display Book at 20.16.
The next offer is 400 shares at 20.20. The order will execute 300
shares at 20.15. Thereafter, autoquote and automatic executions will be
suspended. No more than ten seconds later, the quote will be updated to
reflect the new bid price of 20.16 and the new offer price of 20.20 and
autoquote and auto execution will resume.
Similarly, pursuant to current NYSE Amex Equities Rules, interest
may also not trade through the price point. Again, the Exchange market
is 500 shares bid 20.10 and 300 shares offered at 20.15. The designated
LRP for this security is at a price of 20.15 on the offer side. An
order to buy 600 shares with a limit price of 20.16 is received. There
are 200 shares offered on the Display Book at 20.16 and the next offer
on the Display Book is for 400 shares at 20.20. The order will execute
300 shares at 20.15. Thereafter, autoquote and automatic executions
will be suspended. The DMM will manually execute an additional 200
shares of the order at 20.16 and auto quote and auto execution will
resume. The Exchange quote will be updated to reflect 100 shares bid at
20.16 and 400 shares offered at the price of 20.20.
c. Proposed Amendment to NYSE Amex Equities Rules
In order to have the Exchange market increase the amount of
continuous automatic quoting and executions, it is proposed to reduce
the number of situations when an LRP converts the Exchange to a manual
market. The Exchange is proposing to allow Exchange systems to quote
interest through an LRP price point without converting the Exchange
market to an auction market where the next required action is simply to
quote. In the event a trade is required after reaching an LRP, the
Exchange market will continue to be converted to an auction market.
In instances where the next action after the LRP would be to quote
because there is no interest capable of trading at the relevant price
point, the Exchange proposes to have the Display Book[supreg] maintain
fast market conditions and not convert to a manual market for any
period of time. Rather, interest will be immediately and automatically
quoted and available for automatic executions. As proposed, an LRP will
convert the Display Book to an auction market when an automated quote
following such LRP would result in a locked/crossed market condition.
Once the locked/crossed condition is cleared, automatic quoting and
executions will resume immediately without any pre-set timing delays.
The Exchange believes that in certain situations, when an LRP is
reached, and there is not a locked/crossed market situation, keeping
autoquote active is beneficial to the market since interest on the
Display Book will continue to be autoquoted, and therefore available
for automatic executions.\10\ For example, suppose the market on NYSE
Amex is 20.10 bid and 20.15 offered, last sale at 19.90, with the
current LRP for this security at 20.15 on the offer side since the LRP
is .25. If there is incoming interest that would trade up to the .15
offer, and there is interest on the Display Book to sell at .16, the
Exchange believes the .16 offer should be eligible for autoquoting and,
therefore, automatic execution, rather than the Exchange's market
having to go slow.
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\10\ The Exchange notes that in its experience it does not often
receive additional liquidity in the prescribed amount of time during
LRP situations where the next required action is to quote the
remaining interest, and, therefore, the Exchange believes that
allowing for the continuation of autoquoting will be beneficial to
its market.
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Therefore, the Exchange proposes to amend NYSE Amex Equities Rule
60(d) to allow autoquote to continue when an LRP is reached if the
market on the Exchange is not locked/crossed. For example the Exchange
market is 500 shares bid 20.10 and 300 shares offered at 20.15. The
designated LRP for this security is at a price of 20.15 on the offer
side. An order to buy 600 shares with a limit price of 20.16 is
received. There is no interest offered on the Display Book at 20.16.
The next offer is 400 shares at 20.20. The order will execute 300
shares at 20.15. Autoquote and automatic executions will not be
suspended. Thereafter autoquote will reflect the new quote of 300
shares bid at a price of 20.16 and 400 shares offered at a price of
20.20.
Pursuant to the proposal, there will be no interruption of
autoquote unless the market would be locked/crossed by the interest
that would be autoquoted. Moreover, Exchange systems will still
[[Page 34828]]
not allow the Display Book to trade through an LRP. As such, if the
Exchange market is 500 shares bid 20.10 and 300 shares offered at
20.15. The designated LRP for this security is at a price of 20.15 on
the offer side. An order to buy 600 shares with a limit price of 20.16
is received. There are 200 shares offered on the Display Book at 20.16
and the next offer on the Display Book is 400 shares at 20.20. The
order will execute 300 shares at 20.15. Thereafter, autoquote and
automatic executions will be suspended as it is today. The DMM must
intervene to execute the additional 200 shares of the order at 20.16.
Autoquoting will also resume as soon as a locked/crossed market is
cleared by a manual execution or cancellation of the locking/crossing
interest.\11\
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\11\ The Exchange is working on technology to replicate certain
manual functions currently done by the individual DMM, including
trading out of LRPs that would lock/cross the market. The proposed
change to Rule 60(d) will thus have the effect of providing for the
resumption of Autoquoting when a locked/crossed market is cleared
manually or automatically.
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The Exchange further proposes to amend NYSE Amex Equities Rule
1000(a)(iv) to allow for the continuation of automatic execution unless
(a) any residual interest of the executing order is locking/crossing
the market on the Exchange; or (b) if the resulting bid or offer is
beyond the revised LRP in that security. NYSE Amex Equities Rule
1000(a)(iv) will further be amended to suspend automatic executions
only on the side of the market that is quoted beyond the newly
calculated LRP, except that undisplayed reserve orders at price points
before the LRP will continue to be eligible for automatic executions.
For example, suppose the market on NYSE Amex is 20.10 bid and 20.15
offered, with an LRP Parameter of .25. The designated LRP for this
security is at a price of 20.15 on the offer side. An incoming buy
order limited to 20.15 is entered. It trades up to the 20.15 offer with
residual shares to be executed. There is no other sell interest on the
Display Book until 20.45. An LRP will be calculated based on the last
sale price of 20.15 (i.e., last sale of 20.15 plus the .25 LRP
parameter equals 20.40). The offer will be published as slow since it
is beyond the newly calculated offer side LRP of 20.40 (last sale of
20.15 plus .25). The bid will remain fast since the bid side LRP is
calculated as 19.90 (last sale of 20.15 minus .25). The offer will stay
slow until new interest arrives to quote within the LRP, the LRP is
recalculated off of a new trade or the DMM intervenes and trades
manually.
Finally, the Exchange proposes to amend NYSE Amex Equities Rule
70.25(d)(ix)(A) to remove the restriction that a d-Quote participating
in a sweep transaction must stop within one minimum price variation,
for most Exchange securities, one cent, of a security's LRP. Given the
proposed modification to LRP functionality, allowing d-Quotes to trade
at an LRP price will not cause the Exchange's market to go slow if the
next action will be a quote. For example, presume the market is 20.05
bid and offered at 20.10, with the security's LRP on the sell side set
at 20.13, but with interest on the Display Book to sell higher than the
LRP. If a d-Quote to buy has three cents maximum discretion, it would
not be able to trade at 20.13 under current rules since this price is a
LRP price point. However, since there is interest eligible to be quoted
beyond the LRP, under the proposed rule changes allowing the d-Quote to
use its maximum discretion to trade at 20.13 would not cause the market
to go slow. Therefore, the restriction on the d-quote trading at the
LRP no longer serves its original purpose. As such, the Exchange
proposes to remove said restriction.
The Exchange will commence implementation of the systemic changes
to allow Exchange systems to quote interest through an LRP price point
without converting the Exchange market to an auction market where the
next required action is simply to quote the interest on or about July
10, 2009. The Exchange intends to progressively implement this systemic
change for LRPs 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 have been transitioned to the new system.
In addition to the substantive change proposed above, the Exchange
further proposes to make a technical amendment to NYSE Amex Equities
Rule 1000 to delete a reference to the timing of the beginning of the
New Market Model Pilot \12\ from the preliminary provisions of Rule
1000 since this Pilot has been underway for a number of months.
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\12\ See Securities Exchange Act Release No. 58845 (October 24,
2008), 73 FR 64379 (October 29, 2008) (SR-NYSE-2008-46).
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2. Statutory Basis
The basis under the Securities Exchange Act of 1934 (the
``Act'')\13\ for these proposed rule changes is the requirement under
Section 6(b)(5)\14\ 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 proposed rule change also is designed to support the
principles of Section 11A(a)(1) \15\ 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. The Exchange's proposal to maintain fast
market conditions more often is consistent with the principles above in
that it will increase the amount of time that the Exchange's quote is
eligible for immediate and automatic executions.
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\13\ 15 U.S.C. 78a.
\14\ 15 U.S.C. 78f(b)(5).
\15\ 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 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 foregoing 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 from the date on which it was filed, or
such shorter time as the Commission may designate, if consistent with
the protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the self-regulatory organization to submit to the
Commission 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 filing of
the proposed rule change, or such shorter time as designated by the
Commission. The Exchange has satisfied this requirement.
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[[Page 34829]]
The Exchange has requested that the Commission waive the 30-day
operative delay in order to permit the Exchange to immediately
implement the modifications to its systems discussed in full above,
which should permit the Exchange to maintain fast market conditions
more often, thus increasing the amount of time that the Exchange's
quote is eligible for automatic executions. The Commission believes
such waiver is consistent with the protection of investors and the
public interest.\18\ Accordingly, the Commission designates the
proposed rule change operative upon filing with the Commission.
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\18\ For purposes only of waiving the 30-day operative delay of
this proposal, 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 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-NYSEAmex-2009-39 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-NYSEAmex-2009-39. 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 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-NYSEAmex-2009-39 and should be submitted on or before
August 7, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-17016 Filed 7-16-09; 8:45 am]
BILLING CODE 8010-01-P