[Federal Register Volume 71, Number 124 (Wednesday, June 28, 2006)]
[Notices]
[Pages 36849-36850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-5754]
[[Page 36849]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54024; File No. SR-NYSE-2006-44]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Specialist Algorithmic Quoting Messages Permitted Pursuant
to Exchange Rule 104
June 21, 2006.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 20, 2006, the New York Stock Exchange LLC (``NYSE'') or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Item I and II
below, which Items have been prepared by the Exchange. NYSE filed the
proposed rule change pursuant to section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposed rule change
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NYSE proposes to amend Exchange Rule 104 (Dealings by Specialists)
with respect to the specialists' ability to establish systems employing
algorithms to send messages via a connection to the Display
Book[supreg] system for the purpose of updating quotations
systematically. The text of the proposed rule change is available on
the Exchange's Web site (http://www.nyse.com), at the Exchange's Office
of the Secretary, 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 Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any concerns 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
Section A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Under the NYSE HYBRID MARKET\SM\ initiative \5\, the Exchange
proposed several changes to the manner in which specialists on the
Exchange would be able to establish electronic connections to the
Display Book[supreg] \6\ system (``Display Book'') to provide them with
access to certain information and permit them to make a range of
specified quoting and trading decisions based on that information. The
Exchange proposed amendments to Exchange Rule 104 (Dealings by
Specialists) to provide specialists with the ability to implement
systems that use proprietary algorithms based on predetermined
parameters to electronically participate in the Hybrid Market
(``Specialist Algorithm''). The Specialist Algorithm is designed to
communicate with the Display Book system via an Exchange-owned external
application program interface (``API'').
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 53539 (March 22,
2006), 71 FR 16353 (March 31, 2006).
\6\ The Display Book system is an order management and execution
facility. It receives and displays orders to the specialist,
contains the orders received by the specialist (the ``Book''), and
provides a mechanism to execute and report transactions to the
Consolidated Tape.
---------------------------------------------------------------------------
As approved in the Hybrid Market initiative, the Specialist
Algorithm is permitted to send messages to the Display Book via the API
to quote or trade on behalf of the specialist's proprietary interest.
The Specialist Algorithm will generate these quoting or trading
messages in reaction to specific types of information it will have
access to. This information includes specialist dealer position,
existing quotes, publicly available information the specialist chooses
to supply to the algorithm, incoming orders as they are entering
Exchange systems, and information about orders on the display Book such
as limit orders, percentage orders, stop orders, and auction limit and
auction market orders. This latter information stream is known as
``state of the book'' information.
Since the approval of the Hybrid Market, the Exchange has continued
to discuss Hybrid Market features with its members and advisory
committees. Based on these discussions, the Exchange has decided to
make changes to certain aspects of the Hybrid Market, to produce a
trading venue that best addresses the various needs of its members and
customers.
As part of the implementation of Phase II of the Hybrid Market, the
Exchange is proposing that it have the ability to permit specialists to
send quoting messages via the API in all securities without the
specialists having access to information about incoming orders as they
are entering Exchange systems. This is similar to the manner in which
specialists are allowed to send quoting messages in exchange traded
funds (``ETFs'') and Trust Issued Receipts today,\7\ before the
effectiveness of the full Hybrid amendments, except that the specialist
systems would have access to state of the book information.
---------------------------------------------------------------------------
\7\ Exchange Rule 104 was amended for this purpose in 2004. See
Securities Exchange Act Release No. 50412 (September 20, 2004), 69
FR 57741 (September 27, 2004).
---------------------------------------------------------------------------
Exchange Rule 104 currently allows specialists to send quoting
messages via the API in ETFs and Trust Issued Receipts. These
specialists' algorithms do not have access to the state of the book
information stream. The provision discussed in this filing will be
superseded with the Exchange rule 104 amendments noted above when Phase
II of the Hybrid Market is fully implemented.
The Exchange believes that use of the API to quote in this fashion
will enable specialists and the Exchange to obtain valuable real time
experience with respect to the use of specialist proprietary
algorithms.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Act \8\ in general, and furthers the
objectives of section 6(b)(5) of the Act \9\ in particular, in that it
is 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.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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.
[[Page 36850]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchanges 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 does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
by its terms, become operative for 30 days from the date on which it
was filed, or such shorter time as the Commission may designate if
consistent with the protection of investors and the public interest, it
has become effective pursuant to section 19(b)(3)(A) of the Act \10\
and Rule 19b-4(f)(6) thereunder.\11\
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) normally may
not become operative prior to 30 days after the date of filing.
However, Rule 19b-4(f)(6)(iii) \12\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has requested that the
Commission waive the 30-day operative delay and designate the proposed
rule change immediately operative upon filing. The Commission believes
that waiver of the 30-day operative delay is consistent with the
protection of investors and the public interest because it would allow
specialists to quote more efficiently. Accordingly, the Commission
designates the proposal to be effective and operative upon filing with
the Commission.\13\
---------------------------------------------------------------------------
\12\ 17 CFR 240.19b-4(f)(6)(iii).
\13\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
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 witht he 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 [email protected]. Please include
File Number SR-NYSE-2006-44 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2006-44. 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. Copies of such
filing also will be available for inspection and copying at the
principal office of the Exchange. 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-NYSE-2006-44 and should be submitted on or before July
19, 2006.
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06-5754 Filed 6-27-06; 8:45 am]
BILLING CODE 8010-01-M