
[Federal Register: January 5, 2010 (Volume 75, Number 2)]
[Notices]               
[Page 479-482]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05ja10-149]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61244; File No. SR-NYSEAmex-2009-81]

 
Self-Regulatory Organizations; NYSE Amex LLC; Order Approving the 
Proposed Rule Change, as Modified by Amendment No. 1, Amending NYSE 
Amex Equities Rule 123C To Modify the Procedures for Its Closing 
Process and Make Conforming Changes to NYSE Amex Equities Rule 13 and 
Rule 15

December 28, 2009.

I. Introduction

    On November 9, 2009, the NYSE Amex LLC (``NYSE Amex'' 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 modify the procedures for its closing process 
in Rule 123C and make conforming changes to NYSE Amex Equities Rules 13 
(``Definitions of Orders'') and Rule 15 (``Pre-Opening Indications''). 
The proposed rule change was published for comment in the Federal 
Register on November 17, 2009.\3\ On November 25, 2009, the Exchange 
filed Amendment No. 1 to the proposed rule change.\4\ The Commission 
received no comment letters on the proposal; however, the Commission 
received one comment letter on the parallel NYSE proposal \5\ which is 
germane to this proposal.\6\ This order

[[Page 480]]

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. 60973 (November 9, 
2009), 74 FR 59308 (``Notice'').
    \4\ In Amendment No. 1, the Exchange proposes to correct an 
erroneous cross-reference in Exhibit 5. Because Amendment No. 1 is 
technical in nature, the Commission is not publishing it for 
comment.
    \5\ See Securities Exchange Act Release No. 60974 (November 9, 
2009), 74 FR 59299 (November 17, 2009) (SR-NYSE-2009-111).
    \6\ See Letter from John F. Neary, Managing Director, Morgan 
Stanley, to Elizabeth M. Murphy, Secretary, Commission, dated 
December 8, 2009 (``Morgan Stanley Letter''). While the Morgan 
Stanley Letter welcomed the incremental progress under the proposal 
with regard to transparency, the commenter urged the Exchange to 
adopt additional changes to the closing process, including mandating 
a final and absolute cutoff time for participation in the closing 
process and instituting a more transparent and accurate calculation 
of the real time closing imbalance feed.
     On December 18, 2009, the Exchange responded to the Morgan 
Stanley letter. See Letter from Janet M. Kissane, Senior Vice 
President--Legal & Corporate Secretary, NYSE Euronext, to Elizabeth 
M. Murphy, Secretary, Commission (``Response Letter''). In the 
Response Letter, the Exchange noted that it took into consideration 
input provided by its diverse constituent base, including Morgan 
Stanley, in crafting the changes to the closing process, as well as 
accommodating the interests of diverse constituencies whose business 
models vary widely, and ensuring that changes are implemented in a 
way that minimizes the possibility of unintended consequences. The 
Exchange stated that, given available development resources and the 
complexity of modern markets, it was hesitant to introduce a level 
of incremental change that could have broad-ranging and unforeseen 
consequences. The Exchange noted further that, as it implements the 
changes to the closing process, it will continue to work with its 
varied constituency, including Morgan Stanley, to assess the 
operation of the closing process, with an eye toward any potential 
changes in the behavior of market participants and to identify 
further ways to enhance the efficiency and transparency of the 
Close.
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II. Description of the Proposal

    The Exchange seeks to amend NYSE Amex Equities Rule 123C to modify 
its closing process.\7\ Specifically, the Exchange proposes to amend 
NYSE Amex Equities Rule 123C to: (i) Extend the time for the entry of 
Market ``At-The-Close'' (``MOC'') and Limit ``At-The-Close'' (``LOC'') 
orders from 3:40 p.m. to 3:45 p.m.; (ii) amend the procedures for the 
entry of MOC/LOC orders in response to imbalance publications and 
regulatory trading halts; (iii) change to the cancellation time for 
MOC/LOC orders to 3:58 p.m.; (iv) require only one mandatory imbalance 
publication; (v) rescind the provisions governing Expiration Friday 
Auxiliary Procedures for the Opening and Due Diligence Requirements; 
(vi) modify the dissemination of Order Imbalance Information pursuant 
to NYSE Amex Equities Rule 123C(6) to commence at 3:45 p.m.; (vii) 
include additional information in both the pre-opening and pre-closing 
Order Imbalance Information data feeds; (viii) amend NYSE Amex Equities 
Rule 13 to create a conditional-instruction limit order type called the 
Closing Offset Order (``CO order''); (ix) delete the ``At the Close'' 
order type from NYSE Amex Equities Rule 13 and replace it with the 
specific definitions of MOC and LOC orders; and (x) codify the 
hierarchy of allocation of interest in the closing transaction in NYSE 
Amex Equities Rule 123(C). Similar changes to the rules of the New York 
Stock Exchange LLC have recently been approved.\8\
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    \7\ Conforming changes related to the information disseminated 
prior to the opening transaction are also proposed.
    \8\ See Securities Exchange Act Release No. 61233 (December 23, 
2009) (SR-NYSE-2009-111).
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    The Exchange stated in its filing that it seeks to build on changes 
it made earlier this year to simplify its closing procedures in order 
to provide customers with a more efficient closing process.\9\ The 
closing transaction on the Exchange continues to be a manual auction, 
which the Exchange believes facilitates greater price discovery and 
allows for the maximum interaction between market participants. While 
the Exchange currently provides DMM units with electronic tools to 
facilitate an efficient closing process, the Exchange believes that the 
proposed changes would maximize the use of those tools and allow for an 
even more efficient closing process.
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    \9\ See Notice, supra note 3, at pp. 59308-13 for a detailed 
description of the current closing process.
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Order Entry, Cancellation, Mandatory MOC/LOC Imbalance and 
Informational Imbalance Publications

    The Exchange proposes to amend NYSE Amex Equities Rule 123C to 
require electronic entry of all MOC and LOC orders, including those 
entered to offset imbalances.\10\ The Exchange stated that electronic 
entry of MOC and LOC interest would obviate the need to have imbalance 
publications at both 3:40 p.m. and 3:50 p.m. because the DMM would not 
have to manually keep track of the MOC/LOC interest; rather, Exchange 
systems would track the electronically entered MOC/LOC interest, which 
the Exchange believes would allow its systems to disseminate imbalance 
information to all market participants in a more accurate and timely 
fashion. In addition, according to the Exchange, its customers have 
expressed that in the current trading environment, two imbalance 
publications ten minutes apart are not useful. Accordingly, the 
Exchange proposes to modify the order information available prior to 
the closing transaction and amend NYSE Amex Equities Rule 123C to 
provide for a single imbalance publication as soon as practicable after 
3:45 p.m., to be referred to as the ``Mandatory MOC/LOC Imbalance 
Publication'' (herein ``Mandatory MOC/LOC Imbalance''), when there is 
an imbalance: (i) Of 50,000 shares or more; or (ii) of less than 50,000 
shares that is deemed to be ``significant'' (i.e., significant in 
relation to the average daily volume of the security).\11\ The last 
sale price at 3:45 p.m. would serve as the basis for the Mandatory MOC/
LOC Imbalance.
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    \10\ In the event a Floor broker's handheld device malfunctions, 
the DMM should assist the Floor broker by entering or cancelling 
MOC/LOC orders on the Floor broker's behalf. DMMs perform this 
administrative function on a best efforts basis. See NYSE 
Information Memos 09-26 (June 18, 2009); NYSE Member Education 
Bulletin 05-24 (December 9, 2005).
    \11\ See proposed NYSE Amex Equities Rule 123C(1)(d) and (4).
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    The proposal retains the current ability to publish an 
Informational Imbalance of any size. The Exchange seeks to extend the 
time for the publication of such imbalance from 3:40 p.m. until 3:45 
p.m. in order to provide a mechanism for an imbalance publication prior 
to any Mandatory MOC/LOC Imbalance if the DMM, in consultation with a 
Floor Official or qualified NYSE Euronext employee as defined in 
Supplementary Material .10 of NYSE Amex Equities Rule 46, deems that 
such imbalance publication is warranted for the security. In extending 
the time to 3:45 p.m., the proposed rule would provide that a Mandatory 
MOC/LOC Imbalance or ``no imbalance'' notice must occur as soon as 
possible after 3:45 p.m.\12\
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    \12\ See proposed NYSE Amex Equities Rule 123C(1)(b) and (4).
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    The proposed new rule would further explicitly state that the entry 
of MOC/LOC orders in response to a Mandatory MOC/LOC Imbalance after 
3:45 p.m. may be entered only to offset the published imbalance.\13\ In 
the case of a ``no imbalance'' notification, no offsetting MOC/LOC 
interest could be entered at all after 3:45 p.m.\14\
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    \13\ See proposed NYSE Amex Equities Rule 123C(2)(b)(i).
    \14\ See proposed NYSE Amex Equities Rule 123C(2)(b)(ii).
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    The Exchange's proposal also allows customers to cancel or reduce 
MOC/LOC orders only in cases of legitimate errors \15\ between 3:45 
p.m. and 3:58 p.m.\16\ After 3:58 p.m., cancellations or reductions in 
the size of MOC/LOC orders, even in the event of legitimate error, 
would not be permitted.\17\
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    \15\ Pursuant to proposed NYSE Amex Equities Rule 123C(1)(c), a 
legitimate error is defined to be an error in any term of an MOC or 
LOC order, such as price, number of shares, side of the transaction 
(buy or sell) or identification of the security.
    \16\ See proposed NYSE Amex Equities Rule 123C(3) (Cancellation 
of MOC and LOC orders). The Exchange anticipates that DMMs will have 
sufficient time to perform the requisite calculations for the 
closing transaction while affording customers the ability to cancel 
or reduce in size an MOC/LOC order until 3:58 p.m.
    \17\ The Exchange could temporarily suspend the prohibitions on 
canceling or reducing an MOC or LOC order if there is an extreme 
order imbalance at or near the close. See proposed NYSE Amex 
Equities Rule 123C(9).

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[[Page 481]]

    The Exchange further proposes to create a CO order type, which 
would provide all market participants an additional method to offset an 
order imbalance at the close. The CO order would not be guaranteed to 
participate in the closing transaction. CO orders would only be 
eligible to participate in the closing transaction when there is an 
imbalance of orders to be executed on the opposite side of the market 
from the CO order and there is no other interest remaining to trade at 
the closing price. CO orders must yield to all other eligible interest.
    Unlike MOC/LOC orders, CO orders could be entered on any side of 
the market at anytime prior to the close.\18\ CO orders would not be 
included in the calculation of the Mandatory MOC/LOC Imbalance and 
Informational Imbalance. Consistent with the cancellation requirements 
for MOC and LOC orders, a CO order could be cancelled or reduced for 
any reason up to 3:45 p.m. Between 3:45 p.m. and 3:58 p.m., a CO order 
could be canceled or reduced only in the case of a legitimate error. 
After 3:58 p.m., a CO order, like MOC/LOC orders, could not be 
cancelled or reduced for any reason.
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    \18\ See proposed NYSE Amex Equities Rule 123C(2)(b)(iv).
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    CO orders would be eligible to participate in the closing 
transaction only to offset an imbalance and could not add to or flip 
the imbalance. If there is an imbalance at the close and the price of 
the closing transaction is at or within the limit of the CO order, the 
CO order would be eligible to participate in the closing transaction, 
subject to strict time priority of receipt in Exchange systems among 
such eligible CO orders and after yielding to all other interest in the 
closing execution, including MOCs, marketable LOCs, ``G'' orders, DMM 
interest, and at-priced LOCs. CO orders deemed eligible to participate 
in the close would be executed at the price of the closing transaction. 
If the number of shares represented by CO orders is larger than the 
number of shares required to offset the imbalance, Exchange systems 
would execute only those shares of CO orders required to complete the 
execution of the imbalance in full based on the time priority of 
receipt in Exchange systems of the CO orders. CO orders therefore would 
not be allowed to swing an imbalance to the opposite side of the 
market.

Modifications To Order Imbalance Information Data Feed Prior to the 
Closing and Opening Transaction

    The Exchange further proposes to modify the Order Imbalance data 
feed disseminated prior to the closing transaction. Pursuant to 
proposed NYSE Amex Equities Rule 123C(6)(a)(iii), the Order Imbalance 
data feed would be disseminated approximately every five seconds 
between 3:45 p.m. and 4 p.m. Moreover, the Exchange proposes to expand 
the order information included in the Order Imbalance Information data 
feed. Currently, the pre-closing Order Imbalance Information data feed 
includes the: (i) Reference price; (ii) MOC/LOC imbalance and the side 
of the market; (iii) d-Quotes and all other e-Quotes containing pegging 
instructions eligible to participate in the closing transaction; and 
(iv) MOC/LOC paired quantity at reference price. The proposed new data 
feed would also additionally include (i) CO orders on the opposite side 
of the imbalance and (ii) at-priced LOC interest eligible to offset the 
imbalance.
    The proposed Order Imbalance Information data feed prior to the 
closing transaction would also make available two new data fields. The 
proposed new data fields would provide subscribers with a snap shot of 
the prices at which interest eligible to participate in the closing 
transaction would be executed in full against contra interest at the 
time data feed is disseminated. It would also provide subscribers with 
the price at which closing-only interest (i.e., MOC orders, marketable 
LOC orders, and CO orders on the opposite side of the imbalance) may be 
executed in full and the price at which orders in the Display Book 
(e.g., Minimum Display Reserve Orders, Floor broker reserve e-Quotes 
not designated to be excluded from the aggregated agency interest 
information available to the DMM, d-Quotes pegged e-Quotes,\19\ and 
Stop orders) would be executed in full. Only those CO orders on the 
opposite side of the imbalance would be included in the calculation of 
the new data fields. If the price at which all closing orders in the 
Display Book would be executed in full is at or between the quote, then 
both data fields indicating imbalance information would publish the 
price at which the closing-only interest (i.e., MOC orders, marketable 
LOC orders, and CO orders) could be executed in full.
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    \19\ d-Quotes and pegged e-Quotes included in this new data 
field of the Order Imbalance Information data feed would be included 
at the price indicated on the order as the base price to be used to 
calculate the range of discretion and not at prices within their 
discretionary pricing instructions.
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    Similarly the Exchange proposes to conform the pre-opening Order 
Imbalance Information data feed to provide its market participants with 
more information prior to the opening transaction. As such, the pre-
opening Order Imbalance Information data feed would include the price 
at which all the interest eligible to participate in the opening 
transaction may be executed in full.\20\ The Exchange does not propose 
to modify the time periods pursuant to NYSE Amex Equities Rule 15 when 
the pre-opening Order Imbalance data feed is disseminated. Moreover, 
the calculation of the reference price would also remain the same.
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    \20\ See Proposed NYSE Amex Equities Rule 15.
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Execution of the Closing Transaction

    The Exchange proposes to maintain its current execution logic and 
to codify the hierarchy of allocation logic applied to interest 
participating in the closing transaction. Proposed NYSE Amex Equities 
Rule 123C(7) would list all the interest that must be executed or 
cancelled as part of the closing transaction and the hierarchy of the 
interest that may be used to offset the closing imbalance. This 
codification would now also incorporate the new proposed CO order type 
into the closing transaction as the last interest eligible to 
participate in the closing transaction to offset an imbalance.

Trading Halts

    The Exchange further proposes to amend NYSE Amex Equities Rule 123C 
to define ``trading halt'' as a halt in trading in any security 
pursuant to the provisions of NYSE Amex Equities Rule 123D (``Trading 
Halt'').\21\ Under the proposal, when a Trading Halt is in effect at 
3:45 p.m., a Mandatory MOC/LOC Imbalance would be published as close to 
the resumption of trading as possible if the Trading Halt is lifted 
prior to the close of trading. In this event, MOC/LOC orders could be 
entered to offset the published imbalance. If the Trading Halt is not 
lifted, the entry of MOC/LOC interest, including offsetting interest, 
would be prohibited.
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    \21\ See proposed NYSE Amex Equities Rule 123C(1)(f).
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    Where a Trading Halt occurs in a security after a Mandatory MOC/LOC 
Imbalance is published, MOC/LOC orders could be entered to offset the 
published imbalance.\22\ Where a Trading Halt occurs after 3:45 p.m. 
and there is no Mandatory MOC/LOC

[[Page 482]]

Imbalance in the security, the entry of MOC/LOC interest would not be 
allowed.\23\
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    \22\ See proposed NYSE Amex Equities Rule 123C(2)(c)(i).
    \23\ See proposed NYSE Amex Equities Rule 123C(2)(c)(iii).
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    Unlike MOC/LOC orders, the entry of CO orders on both sides of the 
market would be permitted when a Trading Halt occurs in a security, but 
is lifted prior to the close of trading in the security. Because CO 
orders are the interest of last resort in the closing transaction, 
entry of such orders is not restricted to offsetting the Mandatory MOC/
LOC Imbalance.

Rescission of Expiration Friday Auxiliary Procedures for the Opening 
and Due Diligence Requirements

    The Exchange proposes to rescind the provisions governing 
``Expiration Friday Auxiliary Procedures for the Opening.'' According 
to the Exchange, the provisions governing Expiration Friday were 
created to facilitate a fair and orderly opening transaction in light 
of the additional order flow on Expiration Fridays. Because Exchange 
systems now allow the DMM to accommodate for such fluctuations in 
volume, the Exchange believes that these provisions are unnecessary. 
The order marking provisions were an accommodation to member 
organizations whose systems were unable to electronically affix the 
designation, and the Exchange states that all of its member 
organizations are capable of affixing appropriate order designations.
    The Exchange further seeks to make the provisions of NYSE Amex 
Equities Rule 123C govern solely Market and Limit ``on the Close'' 
Policy. Therefore, the Exchange proposes to delete the ``Due Diligence 
Requirements'' from this rule as they are redundant with the provisions 
codified in NYSE Amex Equities Rule 405.

III. Discussion and Commission Findings

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\24\ In particular, it is consistent with Section 6(b)(5) of 
the Act,\25\ which requires, among other things, that the rules of a 
national securities 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, and not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers. The Commission also finds that the proposed rule change as 
amended is consistent with the provisions of Section 6(b)(8) of the 
Act,\26\ which requires that the rules of an exchange not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.
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    \24\ 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).
    \25\ 15 U.S.C. 78f(b)(5).
    \26\ 15 U.S.C. 78f(b)(8).
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    The electronic entry of MOC/LOC interest should increase the 
efficiency of NYSE Amex's market and permit accurate information to be 
disseminated to market participants more quickly. The modification of 
the procedures for the entry of MOC/LOC orders in response to imbalance 
publications and regulatory trading halts should likewise improve 
transparency and efficiency.
    In connection with the change from two imbalance publications to 
one, the Commission notes the Exchange's representation that its 
customers have expressed that two imbalance publications ten minutes 
apart in the current electronic environment are unnecessary. Moving the 
cut-off time for the entry of MOC/LOC orders from 3:40 p.m. to 3:45 
p.m. should allow Exchange participants additional control of the 
handling of their orders to be executed in the closing transaction and 
additional participation in active markets.
    In connection with the postponing of the cancellation time for MOC 
and LOC orders to 3:58 p.m, the Commission notes the Exchange's 
representations that, with the proposed requirement that all MOC/LOC 
orders be entered electronically, Exchange systems will keep track of 
the available interest thus making it more readily available for the 
DMM and that systemic tracking of MOC/LOC interest makes it entirely 
feasible for the DMM to review in two minutes the interest eligible to 
participate in the closing transaction and facilitate the execution of 
the closing transaction.
    The creation of the CO order provides an additional source of 
liquidity to offset an imbalance going into the closing transaction, 
and thus should increase the greater efficiency of the closing process.
    The Commission believes that these proposed modifications are 
consistent with the Act because, taken as a whole, they should enhance 
the efficiency and transparency of the closing transaction and provide 
customers with a more accurate depiction of market conditions prior to 
the closing transaction, and therefore allow them to make better-
informed trading decisions.
    The Commission believes that the remainder of the proposed changes, 
including the codification of the hierarchy of the allocation of 
interest in the closing, the clarification of the definition of MOC and 
LOC orders, the inclusion of additional information in the Order 
Imbalance Information data feeds, and the rescission of the provisions 
governing Expiration Friday Auxiliary Procedures for the Opening and 
Due Diligence Requirements are either non-substantive or non-
controversial in nature, while enhancing the transparency of NYSE 
Amex's market at the close, and therefore are consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\27\ that the proposed rule change, as amended (SR-NYSEAmex-2009-
81), be, and it hereby is, approved.
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    \27\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-31272 Filed 1-4-10; 8:45 am]

BILLING CODE 8011-01-P
