[Federal Register: December 9, 2003 (Volume 68, Number 236)]
[Notices]
[Page 68684-68685]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09de03-117]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48869; File No. SR-CSE-2003-16]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by National Stock Exchange To
Extend a Pilot Amending Exchange Rule 12.6, Customer Priority, To
Require Designated Dealers To Better Customer Orders at the National
Best Bid or Offer by Whole Penny Increments
December 3, 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 November 28, 2003, National Stock Exchange (``Exchange'') \3\ 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 this proposal
pursuant to section 19(b)(3)(A) of the Act \4\ and Rule 19b-4(f)(6) \5\
thereunder, which renders the proposal effective upon filing with the
Commission.\6\ 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\ The Exchange was formerly known as The Cincinnati Stock
Exchange. See Securities Exchange Act Release No. 48774 (November
12, 2003), 68 FR 65332 (November 19, 2003) (SR-CSE-2003-12).
\4\ 15 U.S.C. 78s(b)(3)(A).
\5\ 17 CFR 240.19b-4(f)(6).
\6\ The Exchange gave the Commission written notice of its
intention to file the proposed rule change on November 24, 2003. The
Commission reviewed the Exchange's submission, and asked the
Exchange to file the instant proposed rule change pursuant to Rule
19b-4(f)(6) under the Act. The Exchange asked the Commission to
waive the 30-day operative delay. 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
The Exchange proposes to extend the termination date of a pilot
that amended Exchange Rule 12.6, ``Customer Priority,'' to add
Interpretation .02.
Interpretation .02 requires an Exchange Designated Dealer
(``Specialist'') to better the price of a customer limit order that is
held by that Specialist if that Specialist determines to trade with an
incoming market or marketable limit order.\7\ Under the pilot rule, the
Specialist is required to better a customer limit order at the national
best bid or offer (``NBBO'') by at least one penny and at a price
outside the current NBBO by at least the nearest penny increment.
Through this proposal, the Exchange is seeking only to extend the
existing pilot, and the exemption letters associated therewith,\8\
through June 30, 2004. The Exchange proposes no other substantive
changes to the pilot. The text of the proposed rule change is available
at the Exchange and at the Commission.
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\7\ See Securities Exchange Act Release Nos. 46274 (July 29,
2002), 67 FR 50743 (August 5, 2002) (SR-CSE-2001-06)(``Pilot'');
46554 (September 25, 2002), 67 FR 6276 (October 4, 2002)(SR-CSE-
2002-12)(``Pilot Extension''); 46929 (November 27, 2002), 67 FR
72711 (December 6, 2002)(SR-CSE-2002-17)(``Second Extension''); and
47941 (May 29, 2003), 68 FR 33751 (June 5, 2003)(SR-CSE-2003-
05)(``Third Exemption'').
\8\ See letter from Robert L.D. Colby (``Colby''), Deputy
Director (``DD''), Division of Market Regulation (``Division''),
Commission, to Jeffrey T. Brown (``Brown''), Senior Vice President
(``SVP'') and General Counsel (``GC''), the Exchange, (July 26,
2002) (``Initial Exemption Letter'') in response to letter from
Brown, SVP and GC, Exchange, to Annette Nazareth (``Nazareth''),
Director, Division, Commission (November 27, 2001)(``Initial
Exemptive Request''); letter from Colby, DD, Division, Commission,
to Brown, SVP and GC, Exchange (September 25, 2002) (amending and
extending Initial Exemption Letter)(``Amended Exemption Letter'') in
response to letter from Brown, SVP and GC, Exchange, to Nazareth,
Director, Division, Commission (September 18, 2002)(``Amended
Exemption Request''); letter from Alden S. Adkins, Associate
Director, Division, Commission, to Brown, SVP and GC, Exchange
(November 27, 2002)(``Second Exemption Extension Letter'') in
response to letter from Brown, SVP and GC, Exchange, to Nazareth,
Director, Division, Commission (November 20, 2002)(``Second
Exemption Request''); and letter from Colby, DD, Division,
Commission, to Brown, SVP and GC, Exchange, (May 29, 2003)(``Third
Exemption Extension Letter'') in response to letter from Brown, SVP
and GC, Exchange, to Nazareth, Director, Division, Commission (May
19, 2003)(``Third Exemption Request'').
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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 Exchange proposes to extend its pilot program, under Exchange
Rule 12.6,\9\ which relates to the trading of securities in subpenny
increments.\10\ Under the pilot, Interpretation .02 of Exchange Rule
12.6 requires a Specialist to better the price of a customer limit
order held by the Specialist by at least one penny (for those customer
limit orders at the NBBO) or at least the nearest penny increment (for
those customer limit orders that are not at the NBBO) if the Specialist
determines to trade with an incoming market or marketable limit
order.\11\
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\9\ Exchange Rule 12.6 provides, in pertinent part, that no
member shall (i) personally buy or initiate the purchase of any
security traded on the Exchange for its own account or for any
account in which it or any associated person of the member is
directly or indirectly interested while such member holds or has
knowledge that any person associated with it holds an unexecuted
market or limit price order to buy such security in the unit of
trading for a customer, or (ii) sell or initiate the sale of any
such security for any such account while it personally holds or has
knowledge that any person associated with it holds an unexecuted
market or limit price order to sell such security in the unit of
trading for a customer.
\10\ In conjunction with the proposed rule change, the Exchange
has requested that the Commission again extend the Amended Exemption
Request pursuant to Rules 11Ac1-1(e) (17 CFR 240.11Ac1-1(e)), 11Ac1-
2(g) (17 CFR 240.11Ac1-2(g)) and 11Ac1-4(d) (17 CFR 240.11Ac1-4(d))
of the Act to allow subpenny quotations to be rounded down (buy
orders) and rounded up (sell orders) to the nearest penny for quote
dissemination for Nasdaq and listed securities. See letter from
Jennifer M. Lamie (``Lamie''), Assistant General Counsel (``AGC'')
and Secretary, to Nazareth, Director, Division, Commission (November
21, 2003) (``Fourth Exemptive Request''). Concurrent with the
instant rule proposal, the Commission has granted the Fourth
Exemptive Request. See letter from Colby, DD, Division, Commission,
to Lamie, AGC and Secretary, CSE (December 1, 2003)(``Fourth
Exemption Letter'').
\11\ Interpretation .01 to Exchange Rule 12.6 provides that
``[i]f a Designated Dealer holds for execution on the Exchange a
customer buy order and a customer sell order that can be crossed,
the Designated Dealer shall cross them without interpositioning
itself as a dealer.''
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The purpose of the Interpretation is to prevent a Specialist from
taking unfair advantage of customer limit orders held by that
Specialist by trading ahead of such orders with incoming market or
[[Page 68685]]
marketable limit orders. Notwithstanding the fact that a Specialist may
price-improve incoming orders by providing prices superior to that of
customer limit orders it holds, customers should have a reasonable
expectation to have their orders filled at their limit order prices.
This expectation should be reflected in reasonable access to incoming
contra-side order flow, unless other customers place better-priced
limit orders with the Specialist or the Specialist materially improves
upon the customer limit order prices (not the customers' quoted prices)
it holds.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of section 6(b) of the Act,\12\ in general, and
section 6(b)(5) of the Act,\13\ in particular, which requires, among
other things, that the rules of an 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.
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\12\ 15 U.S.C. 78f(b).
\13\ 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 inappropriate burden on competition.
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
Because the foregoing 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 for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to section 19(b)(3)(A) of the Act \14\ and
Rule 19b-4(f)(6) \15\ thereunder. At any time within 60 days of the
filing of the 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.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6).
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The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission believes that such waiver is consistent
with the protection of investors and the public interest, for it will
allow the pilot to continue without interruption. For these reasons,
the Commission designates the proposal to be effective and operative
upon filing with the Commission.\16\
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\16\ For purposes only of accelerating the operative date of the
proposed rule change, 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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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.
Comments may also be submitted electronically at the following e-mail address: rule-comments@sec.gov. All comment letters should refer to
File No. SR-CSE-2003-16. This file number should be included on the
subject line if e-mail is used. To help us process and review comments
more efficiently, comments should be sent in hardcopy or by e-mail but
not by both methods. 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 Exchange. All
submissions should refer to file number SR-CSE-2003-16 and should be
submitted by December 30, 2003.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-30502 Filed 12-8-03; 8:45 am]
BILLING CODE 8010-01-P