[Federal Register Volume 74, Number 233 (Monday, December 7, 2009)]
[Notices]
[Pages 64105-64107]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-28999]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61081; File No. SR-NYSEAmex-2009-76]


Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of 
Amendment No. 1 and Order Granting Accelerated Approval to a Proposed 
Rule Change, as Modified by Amendment No. 1 Thereto, Amending NYSE Amex 
Equities Rule 70 in Order To Update d-Quote Functionality and Provide 
for e-Quotes To Peg to the National Best Bid or Offer

December 1, 2009.

I. Introduction

    On October 26, 2009, NYSE Amex LLC (``NYSE Amex'' or the 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend NYSE Amex Equities Rule 70 in order to 
update d-Quote functionality and provide for e-Quotes to peg to the 
National best bid or offer. The proposed rule change was published for 
comment in the Federal Register on November 3, 2009.\3\ NYSE Amex filed 
Amendment No. 1 to the proposed rule change on November 19, 2009.\4\ 
The Commission received no comment letters on the proposed rule change. 
This notice and order provides notice of filing of Amendment No. 1 to 
the proposed rule change, and grants accelerated approval to the 
proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 60887 (October 27, 
2009), 74 FR 56899 (``Notice'').
    \4\ The text of Amendment No. 1 is available on the Exchange's 
Web site (http://www.nyse.com), at the Exchange, and at the 
Commission's Public Reference Room.
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II. Description of the Proposed Rule, as Modified by Amendment No. 1 
Background \5\
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    \5\ The Notice contains additional discussion and examples 
regarding the current operation of d-Quotes and e-Quotes. See supra 
note 3.
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    NYSE Amex Equities Rule 70.25 governs the entry, validation, and 
execution of bids and offers represented electronically by a Floor 
broker on the Floor of the Exchange that include discretionary 
instructions as to size and/or price.\6\ The discretionary instructions 
that a Floor broker may include with an e-Quote can relate to the price 
range within which the e-Quote may trade and the number of shares to 
which the discretionary price instruction applies. D-Quote 
functionality is available for both displayed and reserve interest.
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    \6\ For purposes of these rules, floor broker agency interest 
files (that is, electronic bids or offers from the Floor) are 
referred to as ``e-Quotes.'' E-quotes that include discretionary 
instructions are referred to a ``d-Quotes.''
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    In particular, NYSE Amex Equities Rule 70.25(a) provides that d-
Quotes are eligible for execution only when they are at or join the 
existing Exchange BBO, would establish a new Exchange BBO, or at the 
opening and closing transactions. Under current rules, d-Quotes at or 
joining the Exchange BBO may be displayed or undisplayed interest. In 
addition, NYSE Amex Equities Rule 70.25(d)(ii) currently provides that, 
once it has been activated, a d-Quote will automatically execute 
against a contra-side order if the contra-side order's price is within 
the discretionary pricing instructions and the contra-side order's size 
meets any minimum or maximum size requirements that have been set for 
the d-Quote.
    NYSE Amex Equities Rule 70.26 provides for the entry, validation, 
and execution of an e-Quote that remains available for execution at the 
Exchange

[[Page 64106]]

BBO as the Exchange BBO moves. Floor brokers are able to designate a 
range of prices within which their e-Quotes and d-Quotes will peg and, 
as long as the Exchange BBO is within that range, the e-Quote and d-
Quote will be included in the quote.

Proposed Amendments \7\
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    \7\ The Notice contains additional discussion and examples 
regarding the proposed operation of d-Quotes and e-Quotes. See supra 
note 3.
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D-Quotes Active When Their Filed Price Is Not at the Exchange BBO
    The Exchange proposes to amend NYSE Amex Equities Rule 70.25(a)(ii) 
to provide that d-Quotes would be active and available to execute 
whenever incoming interest satisfies the discretionary instructions, 
without regard to whether the d-Quote's filed price is or becomes the 
Exchange BBO.
    The Exchange also proposes to add clarifying language to NYSE Amex 
Equities Rule 70.25(a)(i) to provide that d-Quotes that exercise 
discretion would be considered non-displayable interest for purposes of 
NYSE Amex Equities Rule 72, and to amend NYSE Amex Equities Rule 
70.25(d)(i) (as proposed NYSE Amex Equities Rule 70.25(e)(i)) to 
provide that a d-Quote with discretionary pricing instructions above 
the best bid if a buy order or below the best offer if a sell order 
would seek to secure the largest execution for the d-Quote using the 
least amount of price discretion to exercise at or above the bid if a 
buy order or at or below the offer if a sell order. The Exchange 
proposes to further clarify that a d-Quote with discretionary pricing 
instructions equal to or less than the best bid if a buy order or equal 
to or greater than the best offer if a sell order would extend to its 
maximum discretion.
    The Exchange states that the proposed d-Quote functionality would 
provide Floor brokers with functionality that is similar to 
functionality that was previously available to Floor brokers on the New 
York Stock Exchange, via CAP-DI orders, when the New York Stock 
Exchange operated in a manual auction.\8\ In addition, the Exchange 
notes that the proposed functionality would allow d-Quotes to interact 
with interest (such as fully dark reserve interest) that did not exist 
when d-Quotes were first introduced, and which would otherwise be 
unable to easily interact with under the current rules. The Exchange 
believes that the d-Quote functionality proposed in this rule filing 
therefore would enable d-Quotes to trade with all willing contra-side 
liquidity, including reserve interest. In this way, the Exchange 
believes that the proposed changes will allow the brokers' tools to 
keep pace with the ways in which trading on the Exchange has evolved.
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    \8\ The Notice contains a discussion regarding CAP-DI orders. 
See supra note 3.
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Minimum Trade Size (``MTS'') Instruction for d-Quotes
    The Exchange also proposes to add a new subsection to NYSE Amex 
Equities Rule 70.25 to provide that a Floor broker may include 
additional discretionary instructions with a d-Quote such that the d-
Quote would only execute if the designated MTS is met. Currently, d-
Quotes may include instructions of a minimum size requirement that 
would trigger discretionary pricing, but such requirement would not 
guarantee a minimum execution size (e.g., if there is other interest on 
the same side as the d-Quote that can trade with a contra-side order 
that meets the d-Quote's minimum size requirement). As proposed, if the 
amount of an execution that would be allocated to a d-Quote is less 
than the MTS quantity, the d-Quote would not be eligible to participate 
in the execution and will not compete with other same-side interest 
from other Floor brokers. Additionally, MTS instructions would not be 
active at the open or close.
    NYSE Amex Equities Rule 70.25(a)(vi) provides that same-side d-
Quotes from the same Floor broker do not compete with each other for 
executions allocated to that Floor broker, as they would if from 
different Floor brokers, when the d-Quote with the most aggressive 
price range executes first. The Exchange proposes to add new paragraph 
(d)(ii) to NYSE Amex Equities Rule 70.25 such that when a Floor broker 
designates an MTS for a d-Quote, such d-Quote may compete with other 
same-side d-Quotes from the same Floor broker by improving the price if 
necessary to satisfy its MTS.
Pegging to the NBBO
    Currently, a pegging e-Quote or d-Quote is activated at the 
Exchange BBO and, subject to its price range, moves when the Exchange 
BBO moves. Under current rules, pegging e-Quotes and d-Quotes cannot be 
the sole interest at the Exchange BBO, but must peg to other non-
pegging interest at the Exchange BBO. Accordingly, under current rules 
and functionality, pegging e-Quotes are unable to set the Exchange BBO.
    The Exchange proposes that pegging e-Quotes and d-Quotes would peg 
to the NBBO rather than the Exchange BBO. As a result, a pegging e-
Quote or d-Quote may set the Exchange BBO, even if there is no other 
displayed bid or offer at the Exchange at that price. Accordingly, the 
Exchange proposes to amend NYSE Amex Equities Rule 70.26(vi) to provide 
that pegging e-Quotes or d-Quotes may be entitled to priority pursuant 
to NYSE Amex Equities Rule 72 if such e-Quote or d-Quote sets the 
Exchange BBO. Under the Exchange's proposal and similar to its current 
rule, if the NBBO moves, the pegging e-Quote or d-Quote would move to 
follow the NBBO, provided that the NBBO is in the price range of the 
pegging e-Quote or d-Quote. In addition, a pegging e-Quote or d-Quote 
would never set the NBBO.

III. Discussion and Commission's Findings

    After careful review of the proposed rule change, as amended, the 
Commission finds that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\9\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\10\ which requires, among other things, 
that exchange rules be designed to prevent fraudulent and manipulative 
acts and practices, 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, protect investors 
and the public interest. The Exchange stated in its filing that it 
believes that the updates to Floor broker functionality meet such goals 
because they should ensure that customer orders eligible to trade will 
execute against willing contra-side liquidity. In particular, d-Quotes 
that are active outside the Exchange BBO provide Floor brokers with 
functionality to replace the now defunct CAP-DI functionality and 
permit d-Quotes to better participate in sweeps or to execute against 
reserve interest. The addition of the MTS instruction provides 
investors with the ability to ensure that an execution will not be 
fragmented and therefore should promote larger-sized executions. In 
addition, the Exchange stated in its filing that it believes that the 
proposed change to provide for e-Quotes and d-Quotes to peg to the NBBO 
should ensure that investors' orders will be executed in the best 
market because

[[Page 64107]]

more liquidity will be available at the NBBO.
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    \9\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the proposal to allow d-Quotes to be 
active when their filed price is inferior to the BBO should contribute 
to market depth by making the Floor brokers' d-Quote liquidity 
available for execution in a greater number of situations. The proposal 
to permit minimum trade size instructions for d-Quotes should allow 
Floor brokers additional flexibility in the handling of their orders 
without adversely affecting the executions of other market 
participants, since Floor brokers would remain subject to the existing 
parity allocation rules.\11\ Finally, the proposal to peg d-Quotes to 
the NBBO rather than the BBO should contribute to market quality by 
providing additional liquidity at the NBBO, thus encouraging the 
tightening of spreads to the NBBO on the Exchange. For the foregoing 
reasons, the Commission finds the proposed rule change is consistent 
with the Act.
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    \11\ See NYSE Amex Equities Rule 72.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether Amendment No. 1 
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-NYSEAmex-2009-76 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEAmex-2009-76. 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, \12\ 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-2009-76 and should 
be submitted on or before December 28, 2009.
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    \12\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov.
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V. Accelerated Approval of Proposed Rule Change, as modified by 
Amendment No. 1

    The Commission also finds good cause to approve the proposed rule 
change, as modified by Amendment No.1, prior to the thirtieth day after 
publication in the Federal Register. The Commission notes that no 
comments were received during the 21-day comment period allotted for 
the initial proposal. The Commission notes that the Exchange's 
representation that the proposal seeks to replace functionality that 
was previously eliminated. In addition, in this case, accelerated 
approval of the proposed rule change will permit the Exchange to 
implement systems changes related to the proposed rule change in a 
timely fashion.
    In addition, the changes proposed in Amendment No. 1, discussed in 
Part III above, seek to clarify the proposed handling of d-Quotes with 
a filed price outside the BBO. The proposal as modified by Amendment 
No. 1 does not differ materially from the proposal as described in the 
Notice and the Commission believes the revision helps clarify the 
proposed operation of d-Quotes.
    In light of the foregoing, the Commission finds good cause, 
consistent with Section 19(b)(2) of the Act,\13\ to approve the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \13\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NYSEAmex-2009-76), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-28999 Filed 12-4-09; 8:45 am]
BILLING CODE 8011-01-P