
[Federal Register: September 22, 2009 (Volume 74, Number 182)]
[Notices]               
[Page 48327-48328]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22se09-137]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60671; File No. SR-NYSE-2009-71]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving a Proposed Rule Change Amending NYSE Rule 1000 to Allow 
Exchange Systems to Access CCS Interest To Partially Fill an Incoming 
Limit Order

September 15, 2009.

I. Introduction

    On July 20, 2009, New York Stock Exchange LLC (``NYSE'' or the 
``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 Rule 1000 to allow Exchange systems 
to access CCS interest to partially fill an incoming limit order. The 
proposed rule change was published for comment in the Federal Register 
on August 11, 2009.\3\ The Commission did not receive any comment 
letters on the proposed rule change. This order approves the proposed 
rule change.
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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. 60429 (August 4, 
2009), 74 FR 40259 (``Notice'').
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II. Description

Background

    The NYSE offers Designated Market Makers (``DMMs'') the ability to 
create a schedule of additional non-displayed liquidity at various 
price points where the DMM is willing to interact with, and provide 
price improvement to, incoming orders in the Exchange's system. This 
schedule is known as the DMM Capital Commitment Schedule (``CCS'').\4\ 
CCS provides the Display Book[supreg] \5\ with the amount of shares 
that the DMM is willing to trade at price points outside, at, and 
inside the Exchange BBO. CCS interest is separate and distinct from 
other DMM interest and serves as the interest of last resort.
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    \4\ The provisions of NYSE Rule 1000 relating to CCS are in 
effect pursuant to a pilot that commenced in October 2008 and that 
is currently scheduled to end on October 1, 2009. The Commission 
understands that NYSE plans to request an extension of the pilot 
before it expires.
    \5\ The Display Book[supreg] system is an order management and 
execution facility. The Display Book system receives and displays 
orders to the DMMs, contains the order information, and provides a 
mechanism to execute and report transactions and publish the results 
to the Consolidated Tape. The Display Book system is connected to a 
number of other Exchange systems for the purposes of comparison, 
surveillance, and reporting information to customers and other 
market data and national market systems.
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    When an order is entered for an amount of shares that exceeds the 
liquidity available at the Exchange BBO, Exchange systems review all 
the liquidity available on the Display Book, including CCS interest, to 
determine the final price point at which the order can be fully 
executed (the ``completion price''). Exchange systems determine the 
completion price by calculating the unfilled volume of the incoming 
order (i.e., the volume of the incoming order that exceeds the volume 
available to execute against it that is then present in the Exchange 
bid or offer) and reviewing the additional displayed and non-displayed 
interest available in the Display Book, which may be at more than one 
price point, including the CCS interest submitted by the DMM unit that 
is available at the completion price. Exchange systems also take into 
account protected bids or offers on markets other than the Exchange 
(``away interest'') when determining the completion price.
    Exchange systems then review the CCS to determine if the number of 
shares provided via the DMM's CCS at the completion price is less than 
the number of CCS shares provided at the next different price that has 
interest that is one minimum price variation (``MPV'') (as that term is 
defined in Exchange Rule 62 \6\) or more higher (in the case of an 
order to sell) or at the next different price that has interest that is 
one MPV or more lower (in the case of an order to buy) (hereinafter 
collectively referred to as ``better price''). If the volume of CCS 
interest that would be accessed is greater at the completion price, or 
is the same at the completion price and the better price, Exchange 
systems access CCS interest at the completion price with CCS interest 
yielding to any other interest in Exchange systems at the completion 
price. If the number of shares that would be allocated to the CCS 
interest at the better price is greater than the number of shares that 
would be allocated to the DMM's CCS interest at the completion price, 
then Exchange systems will access the CCS liquidity available at the 
better price with CCS interest yielding to any other interest in 
Exchange systems (both displayed and undisplayed reserve interest) at 
the better price. Any remaining balance of the incoming order is 
executed at the completion price against displayable and non-
displayable interest pursuant to

[[Page 48328]]

NYSE Rule 72 (``Priority of Bids and Offers and Allocation of 
Executions'').\7\
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    \6\ See NYSE Rule 62, Supplementary Material .10.
    \7\ Pursuant to NYSE Rule 72, round-lot executions on the 
Exchange are allocated on an equal basis, i.e. parity, among market 
participants at a price point unless one of the participants has 
established priority. Priority is established when the participant 
is the only interest displayed at the price point when such price is 
or becomes the best bid or offer published by the Exchange. A 
participant that establishes priority for the displayed portion of 
his or her order is allocated the first 15% of any execution (a 
minimum of one round lot). Any DMM non-CCS interest included in the 
displayed quantity and non-displayed quantity is also executed 
pursuant to NYSE Rule 72.
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    Exchange systems can access CCS interest only once to participate 
in the execution of an incoming order. Moreover, under current rules, 
Exchange systems will only access CCS interest to participate in the 
execution of an incoming order where the incoming order will be 
executed in full.

Proposed Amendment to NYSE Rule 1000

    The Exchange now proposes to allow Exchange systems to access CCS 
interest to participate in executions where the incoming order will 
only be partially executed.\8\ Large incoming orders may exhaust the 
entirety of displayed and reserve interest on the Display Book at 
various price points such that the remaining unexecuted shares of the 
incoming order would be quoted at the order's limit price, if any, or, 
alternatively, at a Liquidity Replenishment Point (``LRP'') \9\ if that 
price point is reached. In these partial executions, Exchange systems 
currently do not access the CCS interest available at the price point 
where the remaining shares of the incoming order is quoted.
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    \8\ For a more detailed description of the Exchange's proposal, 
including examples describing the proposal, see Notice, supra note 
3, at 40261-40262.
    \9\ LRPs are pre-determined price points that temporarily 
convert the automatic Exchange market to an auction market in order 
to dampen volatility when the market is experiencing a large price 
movement based on a security's typical trading characteristics or 
market conditions over short periods of time during the trading day. 
LRPs allow the DMM to solicit additional liquidity.
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    The Exchange proposes to modify the operation of CCS interest to 
allow Exchange systems to access and execute CCS interest to partially 
fill an incoming order that exhausts the interest available on the 
Display Book. Exchange systems would continue to review all the 
liquidity available on the Display Book and at away market centers; 
however, once it determines that the order cannot be executed in full, 
it would also review the DMM CCS interest file to determine if any CCS 
interest is eligible to partially fill the incoming order at the price 
where any remaining shares of the order would be quoted.\10\
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    \10\ In order for the DMM CCS interest to be eligible to 
participate in a partial execution of an incoming order, the DMM 
must designate such interest with a ``PF'' indicator. All liquidity 
provided in the CCS interest file would continue to be eligible to 
participate in full executions of incoming orders. If the DMM did 
not designate the CCS interest eligible for partial fill, then the 
CCS interest would not participate in the execution and the 
remaining shares of the order would be quoted.
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    When Exchange systems access the CCS interest in order to provide a 
partial execution of an incoming order, the CCS interest would 
participate at the price point where the remaining shares will be 
quoted--the order's limit price, if any, or the LRP, if reached. As 
before, any unexecuted remainder of the incoming order would be quoted 
at the limit price or LRP, as applicable.
    When accessing CCS interest to partially execute an order, Exchange 
systems would not review the CCS interest available at the better 
price. For such partial executions, CCS interest would only participate 
at the price at which the unexecuted shares of the incoming order would 
be quoted at the last price, if any, or, if an LRP is reached, at the 
LRP price. As is the case with completed executions, Exchange systems 
would not access CCS interest during a partial execution until all 
other interest on the Display Book at that price point is executed in 
full.
    The Exchange further proposes technical changes to NYSE Rule 
1000.\11\
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    \11\ For a description of these technical changes, see Notice, 
supra note 3, at 40263.
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III. Discussion and Commission's Findings

    After careful review, 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.\12\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\13\ which 
requires, among other things, that a national securities 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 Exchange stated in its filing it 
believes that this proposal would increase an order's execution volume 
by allowing Exchange systems to access CCS interest for partial 
executions. The proposed modification increases the opportunities for 
automatically executing a greater number of shares of the incoming 
order on the Exchange prior to quoting the remainder. Thus, under the 
proposal, partially executed incoming orders would have an opportunity 
to have a greater number of shares receive an execution prior to being 
quoted.
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    \12\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the price point at which the CCS interest 
participates in partial executions would be, by operation of the 
proposed rule, the same or better than any limit price the customer has 
set for the incoming order. For the foregoing reasons, the Commission 
finds the proposed rule change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NYSE-2009-71) be, and it 
hereby is, approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-22732 Filed 9-21-09; 8:45 am]

BILLING CODE 8010-01-P
