[Federal Register: November 22, 2006 (Volume 71, Number 225)]
[Notices]
[Page 67685-67687]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22no06-142]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54758; File No. SR-NYSEArca-2006-81]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending Rules
Related to Complex Order Trading
November 15, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 3, 2006, the NYSE Arca, Inc. (``NYSE Arca'' 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 Exchange. The Exchange
filed the proposal pursuant to Section 19(b)(3)(A)(iii) of the Act \3\
and Rule
[[Page 67686]]
19b-4(f)(6) thereunder,\4\ which renders the proposal 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\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 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
NYSE Arca proposes to amend its rules governing Complex Order
Trading in order to allow the pricing and trading of complex orders in
one cent increments. The Exchange also proposes to eliminate certain
obsolete rules related to the PCX Plus System (``PCX Plus'') Complex
Trading Engine (``CTE''). The text of the proposed rule change is
available on the Exchange's Web site at http://www.nysearca.com, at the
Exchange's Office of the Secretary, and at the Commission's Public
Reference Room.
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 Exchange 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 these 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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to amend NYSE Arca Rule 6.91 which
governs CTE. NYSE Arca proposes to adopt certain rules regarding the
pricing of complex orders that are in effect at the International
Securities Exchange (``ISE'').\5\ The Exchange also proposes to
eliminate certain obsolete rules related to PCX Plus CTE.
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\5\ See ISE Rule 722(b)(1)-(2).
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Administrative Changes. NYSE Arca recently completed the
introduction of the OX Trading System (``OX'') for options. Prior to OX
the Exchange used PCX Plus. The Exchange developed rules for trading
complex orders, some of which were specific to PCX Plus, in particular
those that dealt with PCX Plus CTE. PCX Plus CTE is no longer used to
execute orders. Therefore, the Exchange proposes to eliminate obsolete
rules that applied only to CTE. NYSE Arca will file new rules with the
Commission prior to trading complex orders on OX. The Exchange
anticipates the introduction of complex order trading on OX sometime in
the first quarter of 2007.
The Exchange also proposes amending NYSE Arca Rule 6.91(a) which
deals with the definition of certain order types. NYSE Arca Rule
6.62(j) defines ``Combination orders.'' Proposed NYSE Arca Rule
6.91(a)(10) now will reference NYSE Arca Rule 6.62(j) so that this may
be included with the definition of other complex order types for ease
of reference.
Pricing of Complex Orders. Presently, individual orders comprising
complex orders on NYSE Arca must be executed in minimum price
variations (``MPV'') equivalent to those in NYSE Arca Rule 6.72(a).
Those increments are $.05 for options that are priced less than $3.00
and $.10 for options priced above $3.00.\6\ Complex orders are, by
definition, complex trades involving intricate trading strategies.
These orders, which are made up of two or more option orders (the
``legs'' of the order) or an option order tied to a corresponding
equity order, are typically priced on a net debit/credit basis. The net
debit/credit price is derived from either the difference in, or
combined total of, the individual legs of the order. Pricing on a net
debit/credit basis allows for the pricing of the entire order, as
opposed to having to price the individual legs. Pricing the order as a
single trade allows the order to trade at a price that can be more
reflective of the actual value of the order, which can often be
difficult when using separate prices.\7\ Since all legs of a complex
order are typically done by the same trader or customer, the trade is
often better priced than would be if done as separate trades.\8\ Often,
however, when attempting to execute a trade on a net debit/credit
basis, market participants are prevented from actually trading at the
true value, because they must price the individual legs in standard
MPVs as set forth in NYSE Arca Rule 6.72(a). The requirement that the
legs of a complex order must trade in standard MPVs, even when the
order itself is priced at a net debit/credit, defeats the purpose
behind net debit/credit pricing of complex orders; that being, orders
traded on a debit/credit basis can provide the opportunity for more
efficient pricing of option trades. Therefore, NYSE Arca proposes to
add a new Commentary .01 to NYSE Arca Rule 6.91 to allow the option
leg(s) of complex orders, as defined in NYSE Arca Rule 6.91(a), to be
executed in one cent increments, regardless of the minimum increment
otherwise applicable to the individual option leg(s) of the order.
Providing additional price points at which the individual legs of an
order can be priced may facilitate complex order execution on NYSE Arca
and provide better prices for all participants.
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\6\ The Exchange has proposed changes to NYSE Arca Rule 6.72 as
part of SR-NYSEArca-2006-73, which was filed on October 9, 2006, and
is pending approval. The proposed rule change will create a Penny
Pilot Program which will allow penny pricing in certain classes of
options on NYSE Arca.
\7\ Telephone conversation between Glen Gsell, NYSE Arca, and
Molly Kim, Division of Market Regulation, Commission, on November
13, 2006.
\8\ Id.
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In conjunction with the change above, the Exchange proposes to add
a new Commentary .02 to NYSE Arca Rule 6.91 that requires any leg of a
complex order that takes priority over established customer orders in
the Consolidated Book to be better priced by at least one MPV as
provided in NYSE Arca Rule 6.72. The Exchange believes that these
proposed rule changes related to the pricing of complex orders are
consistent with rules for complex order trading on the ISE.\9\
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\9\ See note 5 supra.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) \10\ of the Act, in general, and furthers the
objectives of Section 6(b)(5),\11\ in particular, in that it is
designed to facilitate transactions in securities, to promote just and
equitable principles of trade, to enhance competition, and to protect
investors and the public interest. In particular, trading complex
orders in one cent increments will provide market participants and
public customers with more pricing options, which could lead to tighter
spreads and increased liquidity at NYSE Arca.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change will not 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
Written comments on the proposed rule change were neither solicited
nor received.
[[Page 67687]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(iii) of the Act \12\ and Rule 19b-4(f)(6) thereunder,\13\
because it: (i) Does not significantly affect the protection of
investors or the public interest; (ii) does not impose any significant
burden on competition; and (iii) by its terms, does not become
operative for 30 days after the date of the filing, or such shorter
time as the Commission may designate if consistent with the protection
of investors and the public interest.\14\
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\12\ 15 U.S.C. 78s(b)(3)(A)(iii).
\13\ 17 CFR 240.19b-4(f)(6).
\14\ As required by Rule 19b-4(f)(6)(iii) of the Act, NYSE Arca
provided the Commission with written notice of its intent to file
the proposed rule change, along with a brief description of the text
of the proposed rule change, at least five business days prior to
the date of the filing of the proposed rule change.
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NYSE Arca requests that the Commission waive the 30-day operative
period under Rule 19b-4(f)(6)(iii).\15\ The Commission believes that it
is consistent with the protection of investors and the public interest
to waive the 30-day operative delay, because waiving the operative
delay will allow NYSE Arca investors to immediately trade and price
complex orders in one cent increments on NYSE Arca.\16\
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\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ 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. 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such 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.\17\
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\17\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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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 rule-comments@sec.gov. Please include
File No. SR-NYSEArca-2006-81 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File No. SR-NYSEArca-2006-81. 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. Copies of such
filing also will be available for inspection and copying at the
principal office of NYSE Arca. 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-NYSEArca-2006-81 and should be submitted on or before
December 13, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-19737 Filed 11-21-06; 8:45 am]
BILLING CODE 8011-01-P