

[Federal Register: October 12, 2006 (Volume 71, Number 197)]
[Notices]               
[Page 60204-60206]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12oc06-96]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54559; File No. SR-NYSE-2006-63]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Rule 19 (Locking or Crossing Protected Quotations in NMS 
Stocks)

October 2, 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 September 28, 2006, the New York Stock Exchange LLC (``NYSE'' 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 NYSE has 
filed the proposed rule change, pursuant to Section 19(b)(3)(A)(iii) of 
the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the 
proposal effective upon filing with the Commission.\5\ The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
---------------------------------------------------------------------------

    \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).
    \5\ The Exchange requested the Commission to waive the five-day 
pre-filing notice requirement and the 30-day operative delay, as 
specified in Rule 19b(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to adopt Exchange Rule 19 in order to 
require its members to reasonably avoid displaying quotations that lock 
or cross any protected quotations in a Regulation NMS (``NMS'') stock 
or any quotation, protected or not in an NMS stock that is disseminated 
pursuant to an effective national market system plan.
    The text of the proposed rule change is below. Proposed new 
language is in italics.

Rule 19.

Locking or Crossing Protected Quotations in NMS Stocks.

    (a) Definitions. For purposes of this Rule, the following 
definitions shall apply:
    (1) The terms automated quotation, effective national market system 
plan, intermarket sweep order, manual quotation, NMS stock, protected 
quotation, regular trading hours, and trading center shall have the 
meanings set forth in Rule 600(b) of Regulation NMS under the 
Securities Exchange Act of 1934.
    (2) The term crossing quotation shall mean the display of a bid for 
an NMS stock during regular trading hours at a price that is higher 
than the price of an offer for such NMS stock previously disseminated 
pursuant to an effective national market system plan, or the display of 
an offer for an NMS stock during regular trading hours at a price that 
is lower than the price of a bid for such NMS stock previously 
disseminated pursuant to an effective national market system plan.
    (3) The term locking quotation shall mean the display of a bid for 
an NMS stock during regular trading hours at a price that equals the 
price of an offer for such NMS stock previously disseminated pursuant 
to an effective national market system plan, or the display of an offer 
for an NMS stock during regular trading hours at a price that equals 
the price of a bid for such NMS stock previously disseminated pursuant 
to an effective national market system plan.

[[Page 60205]]

    (b) Prohibition. Except for quotations that fall within the 
provisions of paragraph (d) of this Rule, members of the Exchange shall 
reasonably avoid displaying, and shall not engage in a pattern or 
practice of displaying, any quotations that lock or cross a protected 
quotation, and any manual quotations that lock or cross a quotation 
previously disseminated pursuant to an effective national market system 
plan.
    (c) Manual quotations. If a member of the Exchange displays a 
manual quotation that locks or crosses a quotation previously 
disseminated pursuant to an effective national market system plan, such 
member of the Exchange shall promptly either withdraw the manual 
quotation or route an intermarket sweep order to execute against the 
full displayed size of the locked or crossed quotation.
    (d) Exceptions.
    (1) The locking or crossing quotation was displayed at a time when 
the trading center displaying the locked or crossed quotation was 
experiencing a failure, material delay, or malfunction of its systems 
or equipment.
    (2) The locking or crossing quotation was displayed at a time when 
a protected bid was higher than a protected offer in the NMS stock.
    (3) The locking or crossing quotation was an automated quotation, 
and the member of the Exchange displaying such automated quotation 
simultaneously routed an intermarket sweep order to execute against the 
full displayed size of any locked or crossed protected quotation.
    (4) The locking or crossing quotation was a manual quotation that 
locked or crossed another manual quotation, and the member of the 
Exchange displaying the locking or crossing manual quotation 
simultaneously routed an intermarket sweep order to execute against the 
full displayed size of the locked or crossed manual quotation.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NYSE 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 NYSE 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange seeks to amend its rules to include Rule 19 in order 
to comply with its obligation to establish, maintain and enforce 
written rules that require NYSE members to reasonably avoid displaying 
quotations that lock or cross any protected quotations in an NMS stock 
or any quotation, protected or not in an NMS stock that is disseminated 
pursuant to an effective national market system plan.\6\
---------------------------------------------------------------------------

    \6\ See, 17 CFR 242.610(d)(1).
---------------------------------------------------------------------------

    Generally, the proposed rule provides that members of the Exchange 
shall not display any quotations that lock or cross a protected 
quotation unless an exception applies. Paragraph (d) sets forth the 
four exceptions under the rule. Pursuant to the rule, a locking or 
crossing quotation does not violate the prohibition when: (i) The 
trading center displaying the locked or crossed quotation is 
experiencing system malfunction; (ii) the protected bid was higher than 
the protected offer; (iii) the locking or crossing quotation was an 
automated quotation and the member simultaneously routed an intermarket 
sweep order to execute against the full displayed size of any locked or 
crossed quotation; or (iv) a manual quotation locks and crosses another 
manual quotation and the member that caused the lock or cross 
simultaneously routed an intermarket sweep order to execute against the 
full displayed size of the locked or crossed manual quotation.
    Exchange Rule 19 addresses intentional locks or crosses because it 
is understood that inadvertent locks or crosses will occur. It does not 
specify how market centers should reconcile locks or crosses between 
two automated quotations. The Commission's interpretation of the rule 
suggests that the market centers should continue trading and natural 
market forces will reconcile the locks or crosses. However, if a manual 
quotation locks or crosses a previously disseminated automated 
quotation to a national market system plan, the member that 
disseminated the manual quotation is required pursuant to paragraph (c) 
of the rule to, ``* * * promptly either withdraw the manual quotation 
or route an intermarket sweep order to execute against the full 
displayed size of the locked or crossed quotation.''
    In addition to the proposal of Rule 19, it should be noted that the 
Exchange's technology will automatically route an intermarket sweep 
order to execute against the full displayed size of any participating 
market center that would be locked or crossed by an Exchange quotation 
prior to quoting.
2. Statutory Basis P>The NYSE believes the proposed rule change is 
consistent with Section 6(b) of the Act \7\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act,\8\ in particular, in that 
it is 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. The NYSE believes that the proposed 
rule change is consistent with these objectives in that it enables the 
Exchange to meets its obligations pursuant to Regulation NMS, which 
serves to modernize and strengthen the national market system.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) \10\ thereunder because 
the proposed rule change: (i) does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) does not become 
operative for 30 days from 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 pursuant to Section 19(b)(3)(A)(iii) 
of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    NYSE has requested that the Commission waive both the five-day pre-
filing requirement and the 30-day

[[Page 60206]]

delayed operative delay.\13\ The Commission is exercising its authority 
to waive the five-day pre-filing notice requirement and believes that 
the waiver of the 30-day operative delay is consistent with the 
protection of investors and the public interest. Waiver of the five-day 
pre-filing and 30-day operative periods will allow NYSE to adopt its 
uniform locking and crossing rule for NMS stocks similar to those 
adopted by other self-regulatory organizations and approved by the 
Commission.\14\ Accordingly, the Commission designates the proposal to 
be effective and operative upon filing with the Commission.\15\
---------------------------------------------------------------------------

    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ See Securities Exchange Act Release No. 54391 (August 31, 
2006), 71 FR 52836 (September 7, 2006) (File No. SR-NSX-2006-08).
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    At any time within sixty (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.\16\
---------------------------------------------------------------------------

    \16\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

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 Number SR-NYSE-2006-63 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2006-63. 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 Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of the NYSE. 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-NYSE-2006-63 and should be 
submitted on or before November 2, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
[FR Doc. E6-16846 Filed 10-11-06; 8:45 am]

BILLING CODE 8011-01-P
