[Federal Register Volume 77, Number 35 (Wednesday, February 22, 2012)]
[Notices]
[Pages 10581-10584]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-4080]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66401; File No. SR-NYSE-2012-03]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Exchange Rule 123C(4) To Provide for How Certain Interest Is 
Included in the Calculation of MOC and LOC Imbalances

February 15, 2012.
    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 February 2, 2012, 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 
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 123C(4) to provide for 
how certain interest is included in the calculation of MOC and LOC

[[Page 10582]]

imbalances. The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, www.nyse.com, and 
www.sec.gov.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Exchange Rule 123C(4) to provide 
more specificity of how certain interest is treated for purpose of 
calculating MOC and LOC \4\ imbalances. In particular, the Exchange 
proposes to amend Rule 123C(4)(a)(vi) to describe how LOC orders priced 
equal to the last sale are treated in the imbalance publication and to 
add new supplementary material to describe how sell short interest is 
treated in the imbalance publication during a Short Sale Period, as 
defined in Exchange Rule 440B.
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    \4\ See Rule 13 for definitions of MOC and LOC orders.
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Background
    Exchange Rule 123C(4) describes how the Exchange calculates the MOC 
and LOC imbalances. The Exchange publishes MOC and LOC imbalance 
information as part of its Informational Imbalance Publication (as 
defined in Rule 123C(1)(b)), Mandatory MOC/LOC Imbalance Publication 
(as defined in Rule 123C(1)(d)), and Order Imbalance Information (as 
defined in Rule 123C(1)(e)), which are further described in Rule 
123C(5) and (6). The MOC and LOC imbalance information is intended to 
provide market participants with a snapshot of the prices at which 
interest eligible to participate in the closing transaction would be 
executed in full against each other at the time the data feed is 
disseminated. The manner by which the imbalance is calculated takes 
into consideration the order of execution at the close, as set forth in 
Rule 123C(7). The goal of such transparency is to attract contra-side 
interest to offset order imbalances, thereby potentially minimizing 
price dislocation at the close.
Proposed Amendments
    Because the MOC and LOC imbalance calculations under Rule 123C(4) 
are intended to provide an informational snapshot of what an imbalance 
may be at a particular time, and are intended to mirror how the 
imbalance is calculated for purposes of determining the closing price, 
the Exchange proposes to amend elements of Rule 123C(4) to describe 
with more specificity how the imbalance is calculated. The Exchange 
notes that these proposed rule change does not change how the Exchange 
currently calculates the imbalance information, but rather provides 
more detail in the rule text concerning the methodology for 
calculation.
    First, the Exchange proposes to amend Exchange Rule 123C(4)(a)(vi) 
to describe with more specificity how LOC interest that is priced equal 
to the last sale is addressed in the MOC and LOC imbalance calculation. 
Because the Buy or Sell Imbalance is intended to be indicative of what 
the imbalance would be at the close, the Exchange seeks to reduce the 
Buy or Sell Imbalance by any closing interest that could potentially 
participate in the close, which is why the rule currently provides that 
tick sensitive MOC and LOC interest can reduce the Buy or Sell 
Imbalance to bring the imbalance quantity as close to zero as possible.
    The Exchange proposes to amend Rule 123C(4)(a)(vi) to add that LOC 
orders priced equal to the last sale also reduce the Buy or Sell 
Imbalance. The Exchange proposes this change because, as set forth in 
Rule 123C(7)(b)(ii), LOC orders priced equal to the closing price may 
participate in the closing transaction. Because such interest may 
participate in the close, the Exchange believes that when calculating 
the imbalance, reducing the Buy or Sell Imbalance by the amount of LOC 
interest priced equal to the last sale provides a potentially more 
realistic indication of how the imbalance may be offset at the close.
    Second, the Exchange proposes to make conforming amendments to 
Rules 123C(4)(a)(vi)(A) and (B), which currently provide more detail of 
which tick sensitive interest is included to offset a Buy or Sell 
Imbalance, as provided for under Rule 123C(4)(a)(vi). Rule 
123C(4)(a)(vi)(A) currently provides that of tick sensitive orders, 
only Sell Plus \5\ MOC and Sell Plus LOC orders priced below the last 
sale will be included to offset the Buy Imbalance. Rule 123C4(a)(vi)(B) 
currently provides that of tick sensitive orders, only Buy Minus \6\ 
MOC and Buy Minus LOC orders priced above the last sale price will be 
included to offset the Sell Imbalance. Because the Exchange is 
proposing to amend Rule 123C(4)(a)(vi) to add that LOC interest priced 
equal to the last sale price can offset the Buy or Sell Imbalance, the 
Exchange proposes to make conforming amendments to Rules 
123C(4)(a)(vi)(A) and (B). Accordingly, the Exchange proposes to amend 
Rule 123C(4)(a)(vi)(A) to specify that Sell Plus LOC orders priced 
equal to or below the last sale price and Sell and Sell Short LOC 
orders priced equal to the last sale price will also be included to 
offset the Buy Imbalance. Similarly, the Exchange proposes to amend 
Rule 123C(4)(a)(vi)(B) to specify that Buy Minus LOC orders priced 
equal to or above the last sale price, and Buy LOC orders priced equal 
to the last sale will be included to offset the Sell Imbalance.
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    \5\ As defined in Rule 13, a Sell Plus order is a market or 
limit order to sell a stated amount of stock for which the price to 
be obtained is not lower than the last sale if the last sale was a 
``plus'' or ``zero plus'' tick, and is not lower than the last sale 
plus the minimal fractional change in the stock if the last sale was 
a ``minus'' or ``zero minus'' tick. The purpose of a Sell Plus order 
is to ensure that a market participant does create a new low price 
with the sell order. For example, if the closing price is $10.10, 
and the last sale prior to the closing transaction was $10.11 or 
higher on a plus or zero plus tick, a Sell Plus LOC with a limit of 
$10.09 would not participate in the closing transaction because it 
would be selling at a price lower than the last sale, which was on a 
plus or zero plus tick.
    \6\ As defined in Rule 13, a Buy Minus order is a market or 
limit order to buy a stated amount of stock on the close for which 
the price to be obtained is not higher than the last sale if the 
last sale was a ``minus'' or ``zero minus'' tick, and is not higher 
than the last sale minus the minimum fractional change in the stock 
if the last sale was a ``plus'' or ``zero plus'' tick. The purpose 
of a Buy Minus order is to ensure that a market participant does not 
create a new high price with the buy order. For example, if the 
closing price is $10.10, and the last sale prior to the closing 
transaction was $10.09 or below on a minus or zero minus tick, a Buy 
Minus LOC with a limit price of $10.11 would not participate in the 
closing transaction because it would be buying at a price higher 
than the last sale, which was on a minus or zero minus tick.
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    Third, the Exchange proposes to amend Rule 123C(4)(a)(vi)(A) and 
(B) to further specify that tick sensitive interest will be included to 
offset the Buy or Sell Imbalance only if such orders could be executed 
consistent with the terms of their tick restrictions. This proposed 
amendment is consistent with the rationale of how MOC and LOC 
imbalances are calculated, namely, to include interest that could 
participate in the closing price to offset the imbalance.

[[Page 10583]]

If, by the terms of the tick restriction, an order could not 
participate in the close, such interest should not be used to offset 
the imbalance calculation. For example, if the Buy Imbalance is 
calculated based on a $10.10 reference price, and the last sale prior 
to that reference price is $10.11 on a plus or zero plus tick, Sell 
Plus MOCs and Sell Plus LOCs are not included to offset that Buy 
Imbalance because they would not participate if that were the closing 
price at that time. Likewise, if the last sale is $10.09 on a minus or 
zero minus tick, and the Sell Imbalance is calculated based on a $10.10 
reference price, Buy Minus MOCs and Buy Minus LOCS priced below the 
last sale are not included to offset the Sell Imbalance because they 
would not participate if that were the closing price at that time.
    Finally, the Exchange proposes to add supplementary material .30 to 
Rule 123C to specify how Sell Short interest is treated for purposes of 
calculating MOC and LOC imbalances during a Short Sale Period, as 
defined in Rule 440B(d). Rule 123C(4)(a)(iv) currently provides that 
Sell Short MOC and Sell Short LOC orders priced below the last sale 
price are included in the aggregation of the Sell side closing volume. 
During a Short Sale Period, if a security closes at a price equal to or 
lower than the last Exchange bid, sell short interest would not be 
eligible to participate in the closing transaction. Because a Sell 
imbalance publication is an indication that the security is more likely 
to close at a price that is equal to or lower than the bid, during a 
Short Sale Period, Sell Short MOC and LOC interest likely would not 
participate in the closing transaction. The Exchange therefore believes 
it is appropriate during a Short Sale Period to exclude Sell Short MOC 
and LOC orders from the Sell side volume because such interest would 
likely not be eligible to participate in the closing transaction.
    In addition, during a Short Sale Period, in addition to the 
interest specified in Rule 123C(a)(4)(vi)(A) that offsets the Buy 
Imbalance (as amended by this rule proposal), all Sell Short MOC and 
LOC interest priced equal to or below the last sale price will be 
included to offset the Buy Imbalance. During a Short Sale Period, if a 
security closes higher than the last Exchange bid, Sell Short MOC and 
LOC interest would be eligible to participate in the closing 
transaction. Because a Buy side imbalance publication is an indication 
that there may be upward price pressure on the closing sale price, and 
the security is more likely to close at a price that is above the bid, 
in such a situation, Sell Short MOC and LOC interest likely would 
participate in the closing transaction. The Exchange therefore believes 
it is appropriate during a Short Sale Period to offset the Buy 
Imbalance with Sell Short MOC and LOC interest because such interest 
would likely participate in the closing transaction.
    The Exchange notes that the manner by which the Exchange currently 
calculates the MOC and LOC imbalances is consistent with how such 
interest would participate if the closing transaction were to be based 
on the point in time at which each MOC and LOC imbalance publication is 
calculated. The Exchange proposes these rule amendments to provide that 
level of specificity in how the rule text describes the manner by which 
the MOC and LOC imbalances are being calculated. The Exchange further 
notes that this rule change concerns only the manner by which the MOC 
and LOC imbalance is calculated for purposes of imbalance publications 
and does not change in any way the manner by which trading occurs at 
the Exchange or how interest is executed in the closing transaction.
2. Statutory Basis
    The basis under the Act for these proposed rule changes are the 
requirement under Section 6(b)(5) \7\ 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. Specifically, this rule proposal 
supports the objective of perfecting the mechanism of a free and open 
market as it provides transparency in the manner by which the Exchange 
calculates the MOC and LOC imbalance information that the Exchange 
publishes pursuant to Rule 123C(5) and (6) both during regular trading 
and during a Short Sale Period pursuant to Rule 440B. Specifically, 
these rule changes provide transparency of how LOC interest priced 
equal to the last sale price will be used to offset a Buy or Sell 
Imbalance and how Sell Short interest will be treated for the imbalance 
calculation during a Short Sale Period.
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    \7\ 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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\ 
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 prior to 
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, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend 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 email to [email protected]. Please include 
File No. SR-NYSE-2012-03 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 No. SR-NYSE-2012-03. This file 
number should be included on the subject line if email is used. To help 
the

[[Page 10584]]

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 Web site viewing and printing 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 No. SR-NYSE-2012-03 and should be submitted on or 
before March 14, 2012.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-4080 Filed 2-21-12; 8:45 am]
BILLING CODE 8011-01-P