
[Federal Register: July 22, 2008 (Volume 73, Number 141)]
[Notices]               
[Page 42640-42641]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22jy08-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58174; File No. SR-NYSEArca-2008-54]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval to a Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, To Amend Rules 6.62 and 6.91 Describing Complex Orders, 
Complex Order Priority, and Complex Order Execution

July 16, 2008.

I. Introduction

    On May 23, 2008, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend NYSE Arca Rules 6.62 and 6.91 describing complex orders, complex 
order priority, and complex order execution. On June 5, 2008, the 
Exchange filed Amendment No. 1 to the proposed rule change. The 
proposal, as modified by Amendment No. 1, was published for comment in 
the Federal Register on June 11, 2008.\3\ The Commission received no 
comments on the proposal. This order approves the proposed rule change, 
as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57927 (June 5, 
2008), 73 FR 33131.
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II. Description of the Proposal

    The Exchange proposes to amend NYSE Arca Rules 6.62 and 6.91 
describing complex orders, complex order priority, and complex order 
execution. Proposed NYSE Arca Rule 6.62 eliminates specific definitions 
for a number of complex order types and adopts a generic definition for 
Complex Orders that is consistent with the definition for Complex 
Orders approved for use for exemption from Trade Through Liability by 
the Options Linkage Authority as described in the Plan For The Purpose 
Of Creating And Operating An Intermarket Option Linkage (``Linkage 
Plan'').
    Proposed NYSE Arca Rule 6.91 describes the entry of Complex Orders 
in the Consolidated Book and the operation of the mechanism, called the 
Complex Order Matching Engine, in which Complex Orders will be executed 
against each other or against individual quotes and orders in the 
Consolidated Book. Complex Orders will be ranked in the Consolidated 
Book in price-time priority based on the strategy and the total or net 
debit or credit. OTP Holders and OTP Firms will have the ability to 
view Complex Orders in the Consolidated Book via an electronic 
interface and to submit orders to the Complex Matching Engine to trade 
against such orders.
    Complex Orders eligible for execution in the Complex Matching 
Engine are defined to be consistent with the Linkage Plan Trade Through 
exemption. Therefore execution prices for the individual legs of a 
Complex Order that are outside of the National Best Bid or Offer may be 
reported. The Complex Matching Engine will never, however, execute any 
of the legs of a Complex Order at a price outside of the NYSE Arca best 
bid or offer (``NYSE Arca BBO'') for that leg.
    Under proposed NYSE Arca Rule 6.91, Complex Orders submitted to 
NYSE Arca will attempt to execute against other Complex Orders in the 
Consolidated Book before attempting to execute against the individual 
leg markets in the Consolidated Book, provided that if individual 
orders or quotes residing in the Consolidated Book can execute against 
the incoming Complex Order in full (or in a permissible ratio) at the 
same total or net debit or credit as a Complex Order in the 
Consolidated Book, the individual orders or quotes will have priority. 
Complex Orders that are not executable when submitted to NYSE Arca will 
be entered into the Consolidated Book. The Complex Matching Engine then 
will monitor individual quotes and orders in the leg markets. If a new 
order(s) or quote(s) enters the Consolidated Book so that the Complex 
Order becomes executable in full (or in a permissible ratio), the 
Complex Order will be executed against the individual quotes and 
orders.
    The Exchange also proposes that Lead Market Makers not be afforded 
any guaranteed allocation either (a) in the execution of a complex 
strategy or (b) if present at the NYSE Arca BBO, when a Complex Order 
executes against the individual leg markets since.

III. Discussion and Commission Findings

    After careful review of the proposal, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\4\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\5\ which 
requires, among other things, that the rules of an exchange be designed 
to prevent fraudulent and manipulative acts and practices, 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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    \4\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \5\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that adopting a generic definition for 
Complex Orders that is consistent with the definition for Complex 
Orders approved for use for exemption from the Linkage Plan's Trade-
Through Liability is consistent with the Act. The Commission notes that 
a generic definition for Complex Orders would provide increased 
flexibility in the use of orders that represent investment strategies 
designed to limit risk or unwind an already established position in a 
portfolio.
    The Commission also believes that the Complex Matching Engine 
should increase the transparency of Complex Orders and could facilitate 
the execution of Complex Orders. The Commission notes that the priority 
of the individual leg markets will continue to be maintained. In this 
regard, if individual orders or quotes residing in the Consolidated 
Book can execute against the incoming Complex Order in full (or in a 
permissible ratio) at the same or better total or net debit or credit 
as a Complex Order in the Consolidated

[[Page 42641]]

Book, the individual orders or quotes in the leg markets will have 
priority. Finally, the Commission believes that the Exchange's proposal 
not to provide a guaranteed allocation to LMMs with respect to Complex 
Orders executed in the Complex Matching Engine is reasonable and 
consistent with the Act, because LMMs do not have any quoting 
obligations for complex strategies.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (SR-NYSEArca-2008-54), as 
modified by Amendment No. 1, be, and hereby is, approved.
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    \6\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-16751 Filed 7-21-08; 8:45 am]

BILLING CODE 8010-01-P
