

[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
