[Federal Register: October 28, 2003 (Volume 68, Number 208)]
[Notices]
[Page 61532-61534]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28oc03-108]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48659; File No. SR-NYSE-2002-40]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment Nos. 1 and 2 by the New York Stock Exchange, Inc.
To Establish Two New Crossing Sessions in the Exchange's Off-Hours
Trading Facility
October 20, 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 August 29, 2002, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. On August 14, 2003, the NYSE filed Amendment No. 1 to the
proposed rule change.\3\ On October 8, 2003, the NYSE filed Amendment
No. 2 to the proposed rule change.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change, as amended,
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Mary Yeager, Assistant Secretary, NYSE, to
Nancy J. Sanow, Assistant Director, Division of Market Regulation,
SEC, dated August 13, 2003, and enclosure (``Amendment No. 1'').
Amendment No. 1 proposes to add ``Crossing Session IV.''
\4\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE,
to Nancy J. Sanow, Assistant Director, Division of Market
Regulation, SEC, dated October 7, 2003, and enclosure (``Amendment
No. 2''). Amendment No. 2 deletes the reference to a volume-weighted
average price (``VWAP'') order from paragraph (c) of proposed Rule
907.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The New York Stock Exchange (the ``Exchange'') proposes to
introduce into its rules ``Crossing Session III,'' for the execution of
guaranteed price coupled orders by member organizations to fill the
balance of customer orders at a price that was guaranteed to a customer
prior to the close of the Exchange's 9:30 a.m. to 4 p.m. trading
session. In Amendment No. 1, the Exchange proposes to adopt a new Rule
907 to also add a ``Crossing Session IV,'' whereby an unfilled balance
of an order may be filled at a price such that the entire order is
filled at no worse price than the Volume Weighted Average Price
(``VWAP'') for the subject security. Proposed Crossing Session III and
[[Page 61533]]
Crossing Session IV would operate as a one-year pilot.
The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in brackets.
* * * * *
Rule 900
(a) Through (d)--No Change.
(e) As used in this 900 series of Rules and other Rules in their
application to Off-Hours Trading, the following terms shall have the
meanings specified below:
(i) The term ``aggregate-price order'' means an order to buy or
sell a group of securities, which group includes no fewer than 15
Exchange-listed securities having a total market value of $1 million or
more.
(ii) The term ``closing price'' means the price established by the
last ``regular way'' sale in a security prior to the official closing
of the 9:30 a.m. to 4 p.m. trading session, as determined by the
Exchange.
(iii) The term ``closing-price order'' means an order to buy or
sell a security at its closing price.
(iv) The term ``guaranteed price coupled order'' means an order to
buy for a minimum of 10,000 shares coupled with an order to sell the
same quantity of the same security. One side of the guaranteed price
coupled order must be for the account of a member organization and the
other side must be for the account of one of its customers. Such orders
must be entered and priced in accordance with Rule 907.
(v) [(iv)] The term ``Off-Hours Trading Facility'' means the
Exchange facility that permits members and member organizations to
effect securities transactions on the Exchange pursuant to this 900
series of Rules. The term ``Off-Hours Trading'' refers to trading
through that facility.
Rule 907
Guaranteed Price Coupled Orders
(a) A member organization may enter into the Off-Hours Trading
Facility a guaranteed price coupled order or an order to be executed at
the volume weighted average price (``VWAP''), subject to the following:
(i) The member organization has accepted from its customer prior to
the close of trading of the Exchange's 9:30 a.m. to 4 p.m. trading
session an order for at least 10,000 shares, and has guaranteed its
customer a specific price with respect to the entire order or the VWAP;
(ii) The member organization has recorded, along with all required
details of the order, the guaranteed price or that the customer has
elected the order be executed at the VWAP and has documented the basis
upon which the VWAP is to be calculated;
(iii) The guaranteed price coupled order or an order to be executed
at the VWAP is for that portion of the customer's order that could not
be executed prior to 4 p.m., but in any event must be at least 10,000
shares;
(iv) The guaranteed price coupled order or VWAP order is priced at
a price that ensures that the entire order is executed at a price that
is no worse than the guaranteed price or VWAP;
(v) The member organization designates the guaranteed price coupled
order as Crossing Session III and the VWAP order as Crossing Session
IV.
(b) A guaranteed price coupled order or VWAP order may be entered
at any time following the close of the 9:30 a.m. to 4 p.m. trading
session on the Exchange until the close of the Consolidated Tape.
(c) A guaranteed price coupled order may be priced at a price that
is outside the range of prices for the subject security during the 9:30
a.m. to 4 p.m. trading session.
(d) A guaranteed price coupled order or VWAP order shall be
immediately executed upon entry into the Off-Hours Trading Facility.
(e) Upon the close of the Consolidated Tape, the Exchange shall
print each trade reported through the Off-Hours Trading Facility as
guaranteed price coupled orders or VWAP orders. Guaranteed price
coupled orders shall be designated as Crossing Session III. VWAP orders
shall be designated as Crossing Session IV.
(f) Member organizations shall not enter a guaranteed price coupled
order or VWAP order pursuant to paragraph (a) of this Rule if the order
is for a security that was subject to a trading halt at the time the
Exchange's 9:30 a.m. to 4 p.m. trading session ended.
* * * * *
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 the proposed rule change, as amended, is to add two
additional ``Crossing Sessions'' to the Exchange's Off-Hours Trading
Facility (``OHTF''). Currently, the OHTF consists of ``Crossing Session
I,'' which permits the execution, at the Exchange's closing price, of
single stock, single sided closing price orders and crosses of single-
stock, closing price buy and sell orders. The OHTF also consists of
``Crossing Session II,'' which permits the execution of crosses of
multiple-stock (``basket'') aggregate price buy and sell orders. For
Crossing Session II, trade reporting is accomplished by reporting to
the Consolidated Tape the total number of shares and the total market
value of the aggregate-price trades. There is no indication of the
individual component stocks involved in the aggregate-price
transactions.
As described below, the Exchange is proposing to add a new
``Crossing Session III,'' which would allow for the execution on the
NYSE of ``guaranteed price coupled orders'' whereby member
organizations could fill the unfilled balance of a customer order at a
price which was guaranteed to the customer prior to the close of the
Exchange's 9:30 a.m. to 4 p.m. trading session. Crossing Session III
would be implemented initially as a one-year pilot program.
The Granting of ``Upstairs Stops''. In serving their institutional
customers, member firms may offer them a guarantee that a large size
order will receive no worse than a particular price. Such a practice is
usually referred to as an ``upstairs stop'' meaning that the firm
guarantees that its customer's order will be executed at no worse price
than the agreed-upon, guaranteed price, with the member firm trading
for its own account, if necessary, to effectuate the guarantee.
Typically, a member firm will seek to execute as much of the order
as possible during the trading day at or below the ``stop'' price (in
the case of a buy order) or at or above the ``stop'' price (in the case
of a sell order). Any portion of the order not filled during the
trading day will be completed after hours, with the firm either buying
from, or selling to, its customer at a price which ensures that the
entire order is executed at a price which is no worse than the ``stop''
price.
Member firms typically execute the unfilled balance of the order,
after the U.S. Consolidated Tape is closed, in the London over-the-
counter market, where
[[Page 61534]]
trades are not reported in real time. The purpose of this is simply to
minimize the possibility that other market participants may ascertain
the firm's, or the customer's inventory position, and possibly trade in
the subject security to the detriment of the firm that granted the
upstairs stop.
The Exchange is proposing to adopt a new post 4 p.m. ``Crossing
Session'' to accommodate member firms that are trading to complete an
``upstairs stop'' and thereby obviate any perceived need to execute
these transactions in London or elsewhere.
In Amendment No. 1, the Exchange is proposing to adopt a new Rule
907 to add, as ``Crossing Session IV,'' a facility whereby member
organizations may fill the unfilled balance of a customer's order at a
price such that the overall order is filled at a price that is no worse
than the volume weighted average price (``VWAP'') for the subject
security on that trading day. The member organization would be required
to document its VWAP agreement with the customer and the basis upon
which the VWAP price would be determined. Crossing Session IV would be
implemented initially as a one-year pilot program.
The Operation of Crossing Session III and Crossing Session IV.
Proposed Crossing Session III and Crossing Session IV would operate as
follows:
(i) The original order as to which an ``upstairs stop'' or ``VWAP''
has been granted must be for at least 10,000 shares;
(ii) The customer must have received a ``stop'' (guaranteed price)
or VWAP for the entire order;
(iii) The member firm must record all details of the order,
including the price it has guaranteed its customer or that the entire
order will be filled at no worse than the VWAP;
(iv) The unfilled balance of the order that would be executed in
Crossing Session III or Crossing Session IV must be at least 10,000
shares;
(v) The customer's order must be executed in Crossing Session III
or Crossing Session IV at a price that ensures that the entire order is
executed at a price that is no worse than the guaranteed price or the
VWAP;
(vi) Orders may be entered in Crossing Session III or Crossing
Session IV between 4 p.m. and 6:30 p.m., and must be identified as
either a Crossing Session III or Crossing Session IV order;
(vii) Member firms will receive an immediate report of execution
upon entering an order into Crossing Session III or Crossing Session
IV;
(viii) Orders may be entered into Crossing Session III for
execution at prices outside the trading range in the subject security
during the 9:30 a.m. to 4 p.m. trading session;
(ix) Orders may not be entered into Crossing Session III or
Crossing Session IV in a security that is subject to a trading halt at
the close of the regular 9:30 a.m. to 4 p.m. trading session; and
(x) At 6:30 p.m., the Exchange will print trades reported through
Crossing Session III as guaranteed price coupled orders or in Crossing
Session IV as VWAP executions.
A proposed amendment to Rule 900 provides a definition of
``guaranteed price coupled orders.'' Proposed new Rule 907 prescribes
the operation of Crossing Session III and Crossing Session IV as
described above.
Relief from Commission Rules. In approving Crossing Session I and
Crossing Session II, the Commission granted exemptive relief from its
Rule 10a-1 \5\ under the Securities Exchange Act of 1934 (the ``Act'')
(short sale rule) for transactions effected therein, finding that such
transactions did not raise all of the same regulatory concerns that are
raised by similar transactions during the 9:30 a.m. to 4:00 p.m.
trading session. In its filing, the Exchange requests that the
Commission extend the exemptive relief from Rule 10a-1 currently
available for transactions effected in Crossing Sessions I and II to
transactions effected in Crossing Session III as well. However, the
NYSE has withdrawn its request for exemptive relief with respect to
Crossing Session III.\6\ In Amendment No. 1, the Exchange did not
request short sale relief with respect to Crossing Session IV.
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\5\ 17 CFR 240.10a-1.
\6\ Telephone conversation between Robert J. McSweeney, Senior
Vice President, Competitive Position, NYSE, and Mary N. Simpkins,
Special Counsel, Division of Market Regulation, Commission, on
August 19, 2003.
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2. Statutory Basis
The NYSE believes that the basis under the Act for this proposed
rule change is 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.
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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
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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. 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 number SR-NYSE-2002-40 and
should be submitted by November 18, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority\8\.
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27095 Filed 10-27-03; 8:45 am]
BILLING CODE 8010-01-P