[Federal Register: May 9, 2003 (Volume 68, Number 90)]
[Notices]
[Page 25071-25073]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09my03-135]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47793; File No. SR-NYSE-2003-10]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of a Proposed Rule Change and Amendment
No. 1 thereto by the New York Stock Exchange, Inc. To Disengage NYSE
Direct+ in Five Actively-Traded Stocks on a One-Week Pilot Basis
May 2, 2003.
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 April 9, 2003, the New York Stock Exchange, Inc. (``NYSE'' or the
``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. On April 28,
2003, the Exchange filed Amendment No. 1 to the proposed rule
change.\3\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons and to
grant accelerated approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE,
to Nancy J. Sanow, Assistant Director, Division of Market Regulation
(``Division''), Commission, dated April 24, 2003 (``Amendment No.
1''). Among other things, Amendment No. 1: (1) Clarifies that the
NYSE is disengaging NYSE Direct+ in five stocks to assess the impact
of its automated dissemination of quotes feature on Exchange floor
transactions without Direct+ changing the depth of the market; (2)
clarifies that during this pilot, the Exchange intends to monitor
variables such as liquidity, continuity, spread, depth, and number
of trades; and (3) provides proposed rule text regarding the pilot
and the five stocks that will not be participating in NYSE Direct+.
On April 30, 2003, the NYSE submitted a new exhibit A to Amendment
No. 1. The new exhibit, which supercedes only Exhibit A to Amendment
No. 1, makes corrections to the proposed rule text by inserting
previously approved rule language under NYSE Rule 1000 that the NYSE
inadvertently excluded from the original filing. See letter from
Donald Siemer, Director, Rule Development, NYSE, to Lisa N. Jones,
Attorney, Division, Commission, dated April 30, 2003.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to disengage NYSE Direct+[reg]\4\ in five
[[Page 25072]]
actively-traded stocks on a one-week pilot basis to assess the impact
of autoquoting of bids and offers in connection with the Exchange's
initiative to disseminate ``liquidity quotes.'' Below is the text of
the proposed rule change. Proposed new language is italicized.
* * * * *
Rule 1000
Automatic Execution of Limit Orders Against Orders Reflected in NYSE
Published Quotation
Only straight limit orders without tick restrictions are eligible
for entry as auto ex orders. Auto ex orders to buy shall be priced at
or above the price of the published NYSE offer. Auto ex orders to sell
shall be priced at or below the price of the NYSE bid. An auto ex order
shall receive an immediate, automatic execution against orders
reflected in the Exchange's published quotation and shall be
immediately reported as NYSE transactions, unless:
(i)-(vi) No change.
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\4\ NYSE Rules 1000-1005 provide for the automatic execution of
limit orders of 1,099 shares or less against the Exchange's
disseminated bid or offer. NYSE Direct+ was originally filed as a
one-year pilot. See Securities Exchange Act Release No. 43767
(December 22, 2000), 66 FR 834 (January 4, 2001) SR-NYSE-00-18). The
Direct+ pilot was subsequently extended for an additional year by
Securities Exchange Act Release No. 45331 (January 24, 2002), 67 FR
5024 (February 1, 2002) (SR-NYSE-2001-50), and recently extended for
an additional year by Securities Exchange Act Release No. 46906
(November 25, 2002), 67 FR 72260 (December 4, 2002) (SR-NYSE-2002-
47).
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Auto ex orders that cannot be immediately executed shall be
displayed as limit orders in the auction market. An auto-ex order equal
to or greater than the size of the NYSE's published bid or offer shall
trade against the entire published bid or offer, and a new bid or offer
shall be published pursuant to Rule 60(e). The unfilled balance of the
auto ex order shall be displayed as a limit order in the auction
market.
During a one-week pilot program in 2003, NYSE Direct+ shall not be
available in the following five stocks: American Express (AXP), Pfizer
(PFE), International Business Machines (IBM), Goldman Sachs (GS), and
Citigroup (C). The Exchange will announce in advance to its membership
the week the pilot will run.
* * * * *
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. The
text of these statements may be examined at the places specified in
Item III 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 Exchange has begun to test on the Exchange's floor its
initiative to disseminate ``liquidity quotes'' \5\ in addition to the
NYSE's highest bid and lowest offer. As part of this initiative, the
Exchange has amended Rule 60 to provide that the Exchange will
``autoquote'' or automatically update the NYSE's highest bid or lowest
offer whenever a limit order is transmitted to the specialist's book at
a price higher (lower) than the previously disseminated highest
(lowest) bid (offer).\6\ When the NYSE's highest bid or lowest offer
has been traded with in its entirety, the Exchange will autoquote a new
bid or offer reflecting the total size of orders on the specialist's
book at the next highest (in the case of a bid) or lowest (in the case
of an offer) price.\7\
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\5\ Liquidity quotes represent additional buying and selling
interest below the best bid and above the best offer.
\6\ See Securities Exchange Act Release No. 47614 (April 2,
2003), 68 FR 17140 (April 8, 2003) (order approving SR-NYSE-2002-
55).
\7\ See id.
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The NYSE believes that both NYSE Direct+ and autoquoting have the
potential to impact the functioning of the NYSE's auction market, as
they involve, without specialist or trading crowd intervention, changes
to the depth of the market and prices at which securities may trade.
NYSE Direct+ involves automatic executions of limit orders of 1,099
shares or less against the Exchange's best bid or offer.\8\ According
to the Exchange, NYSE Direct+ executions have the potential to change
the depth of the market, as well as the tick and last reported sale.
Autoquoting involves the automatic adjustment of the Exchange's
disseminated bids/offers as new limit orders are received onto the
specialist's book.
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\8\ See supra note 4.
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In anticipation of the rollout of NYSE Liquidity
Quote,SM as approved in SR-NYSE-2002-55,\9\ the Exchange
would like to test the impact of autoquoting without the impact of NYSE
Direct+ occurring at the same time. To do so, the Exchange is proposing
to disengage NYSE Direct+ in five actively-traded stocks during a one-
week pilot program. The stocks, which include one company from each of
the Exchange's five largest specialist units, are American Express
(AXP), Pfizer (PFE), International Business Machines (IBM), Goldman
Sachs (GS), and Citigroup (C). The Exchange represents that it will
study the impact of autoquoting on the Exchange floor \10\ with regard
to liquidity, continuity, spread, depth, number of trades, and other
variables.
The Exchange notes that any NYSE Direct+ order (``auto-ex order'')
that would be entered during the one-week pilot in the five stocks
mentioned above would automatically be converted to a SuperDOT order
during that time for representation by the specialist in the Exchange's
auction market.\11\ Further, the Exchange intends to implement the one-
week pilot as soon as practicable after Commission approval and will
notify the Exchange's membership at least one week prior to the actual
implementation date of the one-week pilot.\12\
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\9\ See supra note 6.
\10\ Telephone conversation among Sonia Trocchio, Special
Counsel, Division, Commission, Donald Siemer, Director, Rule
Development and Jeffrey Rosenstruck, NYSE, dated May 2, 2003.
\11\ Currently, under Exchange Rule 1000, auto-ex orders that
cannot be immediately executed shall be converted into SuperDot
orders and displayed as limit orders in the auction market.
Telephone conversation among Sonia Trocchio, Special Counsel,
Division, Commission, Donald Siemer, Director, Rule Development and
Jeffrey Rosenstruck, NYSE, dated May 2, 2003.
\12\ See Amendment No. 1, supra note 3.
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2. Statutory Basis
The Exchange believes that the proposed rule change, as amended, is
consistent with Section 6(b)(5) of the Act,\13\ which requires, among
other things, that the Exchange's rules 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.
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\13\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that 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
The Exchange has not solicited nor received written comments on the
proposed rule change.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and
[[Page 25073]]
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street NW., Washington,
DC 20549-0609. 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 will also be available for inspection and copying at the
principal office of the NYSE. All submissions should refer to File No.
SR-NYSE-2003-10 and should be submitted by May 30, 2003.
IV. Commission Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange. In
particular, the Commission believes that the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act,\14\
which requires, among other things, that the rules of the Exchange be
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.\15\
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\14\ 15 U.S.C. 78f(b)(5).
\15\ In approving the proposed rule, 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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The Commission believes that the proposal should help the NYSE to
maintain a fair and orderly market by enabling the NYSE to test its
autoquoting feature without the interruption of NYSE Direct+, which
automatically changes the depth of market, as well as the tick and last
reported sale in these stocks. In addition, the Commission notes that
NYSE has represented that it will notify members at least one week in
advance of the implementation date of the pilot.
The Commission finds good cause for accelerating approval of the
proposed rule change and Amendment No. 1 prior to the thirtieth day
after publication in the Federal Register. The Commission believes that
accelerated approval will permit the Exchange, without undue delay, to
assess the impact of autoquoting on the Exchange's auction market,
particularly with regard to liquidity, continuity, spread, depth,
number of trades, and other such variables.
Accordingly, the Commission finds good cause, consistent with
Section 19(b)(2) of the Act,\16\ to approve the proposed rule change,
as amended, prior to the thirtieth day after publication of the notice
of filing, on a pilot basis for seven days.
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\16\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the proposed rule change, as amended, (File No. SR-NYSE-
2003-10) be approved as a one week pilot, on an accelerated basis.
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\17\ 15 U.S.C. 78s(b)(2).
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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-11588 Filed 5-8-03; 8:45 am]
BILLING CODE 8010-01-P