
[Federal Register: October 8, 2008 (Volume 73, Number 196)]
[Notices]               
[Page 59014-59017]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08oc08-114]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58702; File No. SR-NSX-2008-16]

 
Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend NSX Rules To Provide for a Minimum Execution Quantity Instruction 
on Certain Pegged Zero Display Reserve Orders

October 1, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on

[[Page 59015]]

September 19, 2008, National Stock Exchange, Inc. (``NSX'' or the 
``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 
Commission is publishing this notice to solicit comment 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.
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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 NSX Rules to allow ETP Holders 
the option of submitting a minimum execution quantity requirement on 
any Midpoint or Market Peg Zero Display Reserve Order resting in the 
NSX Book.
    The text of the proposed rule change is below. Proposed new 
language is in italics. Material proposed to be deleted is enclosed in 
brackets.

RULES OF NATIONAL STOCK EXCHANGE, INC.

CHAPTER XI

Trading Rules
* * * * *

Rule 11.11. Orders and Modifiers

    Users may enter into the System the types of orders listed in this 
Rule 11.11, subject to the limitations set forth in this Rule or 
elsewhere in these Rules.
    (a)-(b) No change.
    (c) Other Types of Orders and Order Modifiers
    (1) No change.
    (2) Reserve Order. A limit order with a portion of the quantity 
displayed (``display quantity'') and with a reserve portion of the 
quantity (``reserve quantity'') that is not displayed.
    (A) A User may enter a Reserve Order with zero display quantity, in 
which case the Reserve Order will be known as a ``Zero Display Reserve 
Order.'' The price of a Zero Display Reserve Order may be set 
(``pegged'') to track the buy-side of the Protected BBO, the sell-side 
of the Protected BBO, or the midpoint of the Protected BBO. A pegged 
Zero Display Reserve Order which tracks the inside quote of the 
opposite side of the market is defined as a Market Peg and a pegged 
Zero Display Reserve Order that tracks the midpoint is defined as a 
Midpoint Peg. A pegged Zero Display Reserve Order may have an optional 
limit price (``Cap'') beyond which the order shall not be executed.
    (B) For Market Peg and Midpoint Peg Zero Display Reserve Orders, a 
User may enter an optional minimum transaction quantity instruction of 
at least a round lot for an execution (hereinafter ``Minimum Execution 
Quantity''). Orders with the Minimum Execution Quantity instruction 
will not execute unless the minimum quantity can be satisfied. However, 
if the residual shares of a Zero Display Reserve Order with a Minimum 
Execution Quantity instruction is less than the Minimum Execution 
Quantity on the order, the order may be executed even if the resulting 
execution is an odd lot.
    ([B]C) A Zero Display Reserve Order, pegged or otherwise, may be 
designated as a Post Only Order by a User. If a Zero Display Reserve 
Order is not designated as a Post Only Order and is entered using the 
Order Delivery mode of interaction described in Rule 11.13(b)(2) and 
the order is immediately marketable upon entry into the System, the 
order will have its mode of order interaction converted to Automatic 
Execution as described in Rule 11.13(b)(1). A Zero Display Reserve 
Order with a Minimum Execution Quantity instruction will be deemed a 
Post Only Order regardless of whether the order is designated as a Post 
Only Order.
    ([C]D) Zero Display Reserve Orders will not be eligible for routing 
to away trading centers pursuant to Rule 11.15(a)(ii).
    (3)-(4) No change.
    (5) Post Only Order. A limit order that is to be posted on the 
Exchange and not routed away to another trading center.
    (A) No change.
    (B) A Post Only Order that is a Zero Display Reserve Order and 
which would interact immediately with a contra-side round lot order 
will:
    (i) execute against a contra-side round lot order if the contra-
side order is a Zero Display Reserve Order that is not designated as a 
Post Only Order. Upon execution, the contra-side Zero Display Reserve 
Order (which was not designated as a Post Only Order) will be deemed as 
taking liquidity from the Post Only Order that is a Zero Display 
Reserve Order and be liable for the applicable fee for taking liquidity 
that is set forth in the NSX [BLADE] Fee and Rebate Schedule even if 
the contra-side Zero Display Reserve Order was placed in the NSX Book 
prior to the Post Only Order that is a Zero Display Reserve Order;
    (ii) not execute against a contra-side round lot order if (x) the 
contra-side order is a displayed order that is already contained in the 
NSX Book or (y) the contra-side order is another Post Only Order that 
is a Zero Display Reserve Order that is already contained in the NSX 
Book. The Post Only Order that is a Zero Display Reserve Order will 
instead be placed in the NSX Book.
    (6)-(9) No change.
    (d) No change.
* * * * *

Rule 11.14. Priority of Orders

    (a) Ranking. Orders of Users shall be ranked and maintained in the 
NSX Book based on the following priority:
    (1) No Change.
    (2) Where orders to buy (or sell) are made at the same price, the 
order clearly established as the first entered into the System at such 
particular price shall have precedence at that price, up to the number 
of shares of stock specified in the order, provided that the priority 
between displayed and Reserve orders is set forth in subsection (4) 
below. A cancel and replace of an order will result in a new timestamp 
and change in time priority.
    (3) No Change.
    (4) The displayed quantity of a Reserve Order shall have time 
priority as of the time of display. If the displayed quantity of the 
Reserve Order is decremented such that 99 shares or fewer would be 
displayed, the displayed portion of the Reserve Order shall be 
refreshed for (i) the original displayed quantity, or (ii) the entire 
reserve quantity, if the remaining reserve quantity is smaller than the 
original displayed quantity. After the refresh, the displayed portion 
of the Reserve Order shall have time priority as of the time of the 
refresh. The reserve quantity of a Reserve Order shall have no time 
priority against other displayed orders at the same price until 
displayed. If all displayed orders and displayed portions of Reserve 
Orders at a given price are executed, and following such execution any 
marketable contra-side orders remain outstanding, then such contra-side 
orders shall be executed against the reserve portions of Reserve Orders 
at such price based on the time priority as determined by this 
paragraph (4). For purposes of the preceding sentence, a Zero Display 
Reserve Order without a Minimum Execution Quantity instruction will be 
deemed to have a displayed portion equal to one round lot. A Zero 
Display Reserve Order with a Minimum Execution Quantity instruction 
will be deemed to have a displayed portion equal to its Minimum 
Execution Quantity for the first pass, and for each additional pass, 
will be deemed to have a displayed portion equal to one round lot. 
Following satisfaction of the marketable contra-side orders, the NSX 
Book will be refreshed.
    (b) No Change.
* * * * *

[[Page 59016]]

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 parts 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 is proposing to amend Exchange Rule 11.11 to allow ETP 
Holders the option of submitting a minimum round lot execution 
instruction on certain Zero Display Reserve Orders posting in the NSX 
Book. Under current Rule 11.11(c)(2), Zero Display Reserve Orders may 
be entered with either a limit price or with a ``peg'', which, at the 
ETP Holder's discretion is pegged to the buy-side, sell-side or 
midpoint of the Protected Best Bid or Offer (``PBBO'').
    In this proposal, NSX proposes to enhance its Zero Display Reserve 
Order functionality to allow ETP Holders seeking to post Zero Display 
Reserve Orders pegged to track the inside quote on the opposite side of 
the market (hereinafter ``Market Peg'') or the midpoint (hereinafter 
``Midpoint Peg'') to stipulate a minimum transaction size of at least 
one round lot for an execution (hereinafter the ``Minimum Execution 
Quantity'').\3\
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    \3\ While the minimum quantity for a Minimum Execution Quantity 
order is a round lot, mixed lots are permitted.
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    Any Midpoint or Market Peg order with a Minimum Execution Quantity 
instruction will be deemed a ``Post Only'' order, regardless of whether 
the order is designated as such. Thus, any Zero Display Reserve Order 
with a Minimum Execution Quantity instruction will never take liquidity 
from the NSX Book.
    A Zero Display Reserve Order with a Minimum Execution Quantity 
instruction may only be executed if the quantity is equal to or greater 
than the minimum quantity amount. Thus, if an order with the Minimum 
Execution Quantity instruction is posted in the NSX Book and eligible 
for matching, it will be allocated shares in the first matching pass in 
accordance with the minimum quantity amount. However, in any subsequent 
matching pass, these orders will be allocated shares in the same method 
as other Zero Display Reserve Orders with a deemed display of one round 
lot, according to its price and time priority under NSX Rule 11.14(a). 
A chart reflecting the allocation method is reflected in Example 1 
below.
    Example 1:

                                                      Book
----------------------------------------------------------------------------------------------------------------
                 Time                              Bid                Display         Reserve       Min Ex  Qty
----------------------------------------------------------------------------------------------------------------
T1....................................  Market Peg..............               0            2000               0
T2....................................  Mdpt Peg................               0            5000             500
T3....................................  Mdpt Peg................               0            3000               0
T4....................................  9.80....................             100               0  ..............
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              NBBO 10 X 10.10--Inbound Market Sell of 3000
------------------------------------------------------------------------

------------------------------------------------------------------------
Pass 1-20...........................     T1  2,000 @ 10.10
                                             (100 each pass) 10.05
Pass 21.............................     T2  500 @ 10.05
                                         T3  100 @ 10.05
Pass 22.............................     T2  100 @ 10.05
                                         T3  100 @ 10.05
Pass 23.............................     T2  100 @ 10.05
                                         T3  100 @ 10.05
------------------------------------------------------------------------

    Zero Display Reserve Orders with a Minimum Execution Quantity 
instruction will not execute unless the minimum quantity required can 
be satisfied. In the event that following a partial execution the 
residual order quantity is less than the Minimum Execution Quantity, 
the Minimum Execution Quantity will be ignored and the order may be 
executed, even if the resulting execution is an odd lot. In addition, 
as with other Zero Display Reserve Order features, the Minimum 
Execution Quantity instruction may be modified by entering a cancel/
replace of the Zero Display Reserve Order. However, in this case, a new 
timestamp will be applied.
    Finally, the Exchange proposes a technical change to conform Rule 
11.11(c)(5)(B)(i) to the revised name of the NSX Fee and Rebate 
Schedule.
Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act,\4\ in general, and 
Section 6(b)(5) of the Act,\5\ 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. The 
feature proposed in this filing promotes the foregoing objectives by 
facilitating executions with optional minimum quantity thresholds.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 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: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the

[[Page 59017]]

public interest, the proposed rule change has become effective pursuant 
to Section 19(b)(3)(A) of the Act \6\ and Rule 19b-4(f)(6) \7\ 
thereunder.
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with 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 fulfilled this 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 designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest.\8\ 
Previously, the Commission approved an order type similar to the one 
proposed,\9\ and this proposal does not raise any novel issues. For 
these reasons, the Commission designates the proposed rule change as 
operative upon filing.
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    \8\ For purposes only of waiving the 30-day operative delay, the 
Commission has also considered the proposed rule's effect on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \9\ See Securities Exchange Act Release No. 56072 (July 13, 
2007), 72 FR 39867 (July 20, 2007), (SR-NYSEArca-2007-61) (adopting 
Mid-Point Passive Liquidity Order with minimum quantity; Securities 
Exchange Act Release No. 56790 (November 15, 2007), 72 FR 65797 
(November 23, 2007), (SR-NYSEArca-2007-113) (reducing Mid-Point 
Passive Liquidity Order's minimum executable size from 1000 to 100).
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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.\10\
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    \10\ 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 Number SR-NSX-2008-16 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NSX-2008-16. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing will also be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-NSX-
2008-16 and should be submitted on or before October 29, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-23765 Filed 10-7-08; 8:45 am]

BILLING CODE 8011-01-P
