

[Federal Register: January 7, 2008 (Volume 73, Number 4)]
[Notices]               
[Page 1250-1252]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07ja08-65]                         


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57063; File No. SR-NYSE-2007-123]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Rule 1000 (Automatic Execution of Limit Orders Against 
Orders Reflected in NYSE Published Quotation)

December 28, 2007.
    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 December 27, 2007, the New York Stock Exchange LLC (``Exchange'' or 
``NYSE'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
The Exchange has designated this proposal as non-controversial under 
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder,\4\ which renders the proposed rule change 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

    The Exchange is proposing to amend Exchange Rule 1000(a)(iv) to 
provide for, in specified circumstances, Liquidity Replenishment Points 
(``LRPs'') to be calculated based on the last published quote rather 
than the last sale price. The text of the proposed rule change is 
available at NYSE, the Commission's Public Reference Room, and http://www.nyse.com
.


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 NYSE proposes to amend Exchange Rule 1000(a)(iv) to provide 
for, in specified circumstances, LRPs to be calculated based on the 
last published quote rather than the last sale price.

a. Current Exchange Rule 1000(a) (Automatic Execution of Limit Orders 
Against Orders Reflected in NYSE Published Quotation)

    Currently, Exchange Rule 1000(a) provides that, subject to certain 
exceptions, an automatically executing order shall receive an automatic 
execution against orders reflected in the Exchange published quotation, 
orders on the Display Book, e-Quotes, s-Quotes, and CAP-DI orders.\5\ 
One exception is where a Liquidity Replenishment Point (``LRP'') has 
been reached.\6\
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    \5\ See Exchange Rule 1000(a). Rule 1000(a)(iv), governing the 
calculation of LRPs, was originally adopted on March 22, 2006, as 
part of the Exchange's development and implementation of the Hybrid 
market. See Securities Exchange Act Release No. 53539 (March 22, 
2006), 71 FR 16353 (March 31, 2006) (SR-NYSE-2004-05). The Rule was 
subsequently amended in November 2006 to simplify the LRP procedures 
to their current form. See Securities Exchange Act Release No. 54820 
(November 27, 2006), 71 FR 70824 (December 6, 2006) (SR-NYSE-2006-
65).
    \6\ See Exchange Rule 1000(a)(iv).
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    LRPs are pre-determined price points that function as ``speed 
bumps'' to moderate volatility in a particular security, improve price 
continuity, and foster market quality by temporarily converting the 
electronic market to an auction market and permitting new orders, the 
Crowd, and the specialist to add liquidity.\7\ LRPs are calculated and 
reset automatically every 30 seconds throughout the day by both adding 
and subtracting a value to the last sale price on the Exchange in the 
relevant security.\8\ LRPs are also automatically calculated after a 
manual trade by a specialist.\9\ When a LRP is reached, Auto Execution 
is suspended and the market for the particular security temporarily 
changes to an auction (or ``slow'') market.\10\ Auto Execution resumes 
as soon as possible after a LRP is reached, usually in no more than 5 
to 10 seconds or immediately following a manual transaction.\11\ LRPs 
are automatically recalculated when Auto Execution resumes after a LRP 
has been reached.\12\ The values used to calculate the LRPs are 
determined and disseminated by the Exchange and do not change 
intraday.\13\ LRPs are not calculated and active until a trade in the 
relevant security occurs on the Exchange.\14\
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    \7\ See Securities Exchange Act Release No. 53539 (March 22, 
2006), 71 FR 16353, at 16362 (March 31, 2006) (SR-NYSE-2004-05).
    \8\ See Exchange Rules 1000(a)(iv)(A) and (C). LRPs are 
calculated based only on sale prices for trades executed on the 
Exchange and do not take into account trades executed on away 
markets.
    \9\ See Exchange Rule 1000(a)(iv)(C).
    \10\ See Exchange Rules 1000(a) and (b). See also Exchange Rules 
60(e)(ii)(C), 79A.30(a).
    \11\ See Exchange Rule 60(e)(ii)(C).
    \12\ See Exchange Rule 1000(a)(iv)(C).
    \13\ See Exchange Rule 1000(a)(iv)(A).
    \14\ See Exchange Rule 1000(a)(iv)(B).
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b. Proposed Amendments to Exchange Rule 1000(a)(iv)

    The Exchange proposes to amend Rule 1000(a)(iv) to provide for, in 
specified circumstances, LRPs to be calculated based on the last 
published quote rather than the last sale price. Because of the way the 
system is currently designed, when a stock is opened on a quote, the 
system cannot calculate LRPs in that stock until the first new sale 
occurs on the Exchange. Similarly, when Auto Execution resumes after it 
was disabled due to quoting beyond the LRP, the system resets the LRP 
for the ``slow'' side to zero and will not recalculate a new LRP until 
the next sale on the Exchange. In both instances, particularly with a 
thinly traded stock, the next sale may not occur for some time.
    In order to address these technical limitations and fill in gaps in 
the calculation of LRPs, proposed new Rule 1000(a)(iv) would provide 
for LRPs to be calculated based on the last published quote, rather 
than the last sale price, when (i) a stock opens on a quote, or (ii) 
upon resumption of Auto Execution after it was disabled due to quoting 
beyond the LRP.

c. Calculation of LRPs When Opening on Quote

    Under the proposed new Rule 1000(a)(iv), when a stock opens on a 
quote, the LRPs will be calculated immediately using the opening quote 
by taking the offer and adding the LRP value (High LRP = offer + LRP 
value) and taking the bid and subtracting the LRP value (Low LRP = bid-
LRP value). These LRPs will remain in effect until the first sale of 
the security on the Exchange, at which time the LRPs will be reset 
based upon that sale price.

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d. Calculation of LRPs When the Market Is Slow

    Under the proposed new Rule 1000(a)(iv), upon resumption of Auto 
Execution after it was suspended due to quoting beyond one (or both) of 
the LRPs (the ``slow'' side), the LRP will be recalculated on the 
``slow'' side using the last published quote for that side by taking 
either the offer (or the bid) and adding (or subtracting) the LRP 
value. Only the ``slow'' side LRP will be recalculated. This LRP will 
not be recalculated until a manual trade is entered, there is a new 
sale of the security on the Exchange, or the stock becomes ``slow'' 
again and the specialist again resumes Auto Execution. When a manual 
trade is entered or there is a new sale, both LRPs will be immediately 
recalculated based on the last sale price.
    The Exchange believes these changes would expand the advantages of 
LRPs and would better inform its customers, specialists and the market 
as a whole what the Exchange's trading ranges are and when Automatic 
Execution may be halted by the Exchange.
2. Statutory Basis
    The basis for the proposed rule change is the requirement under 
Section 6(b)(5) of the Act \15\ 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. The proposed rule change also is designed to support 
the principles of Section 11A(a)(1) \16\ of the Act in that it seeks to 
ensure economically efficient execution of securities transactions, to 
make it practicable for brokers to execute investors' orders in the 
best market, and to provide an opportunity for investors' orders to be 
executed without the participation of a dealer.
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    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78k-1(a)(1).
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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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \17\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\18\ Because the foregoing 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 on which 
it was filed, or such shorter time as the Commission may designate, if 
consistent with the protection of investors and the public interest, 
the proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.\19\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ Rule 19b-4(f)(6) also requires the Exchange to give the 
Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has satisfied the five-day pre-filing 
requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to waive the operative 
delay if such action is consistent with the protection of investors and 
the public interest. The Exchange has asked the Commission to waive the 
operative delay to permit the proposed rule change to become effective 
prior to the 30th day after filing.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Waiver of the 30-day pre-operative waiting period will allow the 
benefits of expanding the recalculation and use of LRPs to certain 
times when there is no available last sale price to be realized without 
delay. Therefore, the Commission has determined to waive the 30-day 
delay and allow the proposed rule change to become operative upon 
filing.\20\
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    \20\ For purposes only of waiving the operative delay of this 
proposal, the Commission notes that it 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 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.

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-NYSE-2007-123 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-2007-123. 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 Commissions 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, 100 F Street, NE., Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of the Exchange. All comments received 
will be posted without change; the Commission does

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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-2007-123 and should be 
submitted on or before January 28, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E7-25600 Filed 1-4-08; 8:45 am]

BILLING CODE 8011-01-P
