
[Federal Register: December 18, 2008 (Volume 73, Number 244)]
[Notices]               
[Page 77091-77093]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18de08-127]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59082; File No. SR-NYSEArca-2008-135]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Amending Rule 6.47A To Reduce the Order 
Exposure Period from Three Seconds to One Second

December 11, 2008.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on December 9, 2008, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 proposes to amend its rules governing order exposure 
requirements on the OX system. This proposal will revise Rule 6.47A. A 
copy of this filing is available on the Exchange's Web site at http://
www.nyse.com, at the Exchange's principal office 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 self-regulatory organization 
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 those 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to reduce the exposure 
period contained in Rule 6.47A, Order Exposure Requirements--OX, from 
three seconds to one second.
    Rule 6.47A provides that with respect to orders routed to OX, Users 
may not execute as principal orders they represent as agent unless (i) 
Agency orders are first exposed on the Exchange for at least three (3) 
seconds or (ii) the User has been bidding or offering on the Exchange 
for at least three (3) seconds prior to receiving an agency order that 
is executable against such bid or offer.
    Specifically, order entry firms may not execute as principal, 
orders they represent as agent unless: (i) the agency order has first 
exposed on the NYSE Arca OX trading system for at least three seconds; 
(ii) the order entry firm has been bidding or offering for at least 
three seconds prior to receiving the agency order that is executable 
against such bid or offer. During this three-second exposure period, 
other market participants may enter orders to trade

[[Page 77092]]

against the exposed order. Under this proposal, the exposure periods 
contained in Rule 6.47A would be reduced to one second.
    The Exchange notes that in incorporating a three-second order 
exposure period in Rule 6.47A, it recognized that three seconds would 
not be long enough to allow human interaction with the exposed orders. 
Rather, market participants on NYSE Arca are sufficiently automated 
that they can react to these orders electronically. In this context, 
NYSE Arca believes it would be in all market participants' best 
interest to minimize the exposure period to a time frame that continues 
to allow adequate time for market participants to electronically 
respond, while at the same time reducing any market risk associated 
with the longer exposure period. In this respect, the Exchange states 
that its experience with the three-second exposure time period 
indicates that one second would provide an adequate response time.\4\ 
Accordingly, the Exchange does not believe it is necessary or 
beneficial to the orders being exposed to continue to subject them to 
market risk for a full three seconds.
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    \4\ There are numerous market participants on NYSE Arca that 
have the capability and already opt to respond within the first one-
second of the present three second exposure period, currently in 
force for the OX trading system.
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    When adopting the existing three-second order exposure period, the 
Exchange realized that, in today's electronic trading environment, a 
three-second exposure period could provide timely executions of orders 
while still providing market participants with an adequate opportunity 
to compete for exposed bids and offers. Continuing on that same logic, 
the Exchange believes that reducing its order exposure period from 
three seconds to one second will benefit market participants. Since 
market participants have the ability to react to these orders 
electronically, and regularly do so in less than one second, the 
Exchange believes that reducing the time period to one second will 
continue to afford sufficient time to ensure effective interaction with 
orders. At the same time, NYSE Arca believes that reducing the time 
period to one second will allow it to provide investors and other 
market participants with more timely executions, thereby reducing 
market risk.
    A shortened exposure period would be fully consistent with the 
electronic nature of the NYSE Arca OX trading system. In order to 
substantiate that market participants on NYSE Arca would not be 
disadvantaged by a reduced exposure period, the Exchange conducted a 
survey of OTP Firms to find out whether they had the systems capability 
available that would allow them to respond in a meaningful way within 
the proposed timeframe. The Exchange surveyed twenty-six (26) OTP 
Firms, representing fifty-one (51) different OTP Holders, that 
regularly access the Exchange on an electronic basis,\5\ regarding the 
proposed change to Rule 6.47A, specifically the Exchange asked; 1. 
``What is the approximate turnaround time for your firm to take in, 
process and respond to trading interest posted on NYSE Arca Options?'' 
and 2. ``Do you foresee any problems if NYSE Arca Options reduces the 
exposure time from three seconds to one second?'' Of the nine OTP Firms 
that responded to the Exchange's survey, all but one indicated that 
their approximate turnaround time for responding to trading interest 
was equal to, or less than, 100 milliseconds. The other responding OTP 
Firm simply stated that their turnaround time was ``less than one 
second''. None of the responding OTP Firms anticipated any problems 
related to order processing, if the Exchange was to reduce the exposure 
period to one second.
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    \5\ The twenty-six (26) surveyed collectively accounted for 
slightly more than 90% of all electronically executed transactions 
on the NYSE Arca OX system, during the month of October 2008.
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    Based on the findings of the survey, the Exchange believes that the 
proposed exposure period will continue to provide market participants 
with sufficient time to respond, and compete for orders, while also 
reducing some of the risks associated with a prolonged exposure period.
2. Statutory Basis
    NYSE Arca believes that the proposed rule change is consistent with 
Section 6(b) of the Act \6\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \7\ in particular, because it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system. In particular, the 
Exchange believes that the proposed rule change will provide investors 
with more timely execution of their options orders, while ensuring that 
there is an adequate exposure of all orders on NYSE Arca.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 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 solicited comments from a broad cross section of OTP 
Holders. As previously stated, the Exchange received no negative 
comments on the proposed rule change.\8\
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    \8\ See Form 19b-4 and e-mail from Glenn Gsell, Managing 
Director, NYSE Regulation, to Kristie Diemer, Special Counsel, 
Commission, dated December 10, 2008 (requesting that language from 
Item 5 of Form 19b-4 replace language in Item II, Part C of Exhibit 
1).
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The Exchange has requested accelerated approval of this proposed 
rule change prior to the 30th day after the date of publication of the 
notice in the Federal Register. The Commission is considering granting 
accelerated approval of the proposed rule change at the end of a 15-day 
comment period.

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-NYSEArca-2008-135 on the subject line.

[[Page 77093]]

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-NYSEArca-2008-135. 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 20549-1090. Copies of the filing will also be 
available for inspection and copying at NYSE Arca's principal office. 
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-2008-
135 and should be submitted on or before January 2, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-30067 Filed 12-17-08; 8:45 am]

BILLING CODE 8011-01-P
