[Federal Register Volume 75, Number 185 (Friday, September 24, 2010)]
[Notices]
[Pages 58456-58460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23924]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62955; File No. SR-NYSE-2010-67]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by New York Stock Exchange LLC Relating to Execution Algorithm
of NYBX Orders
September 20, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\
[[Page 58457]]
notice is hereby given that, on September 9, 2010, the New York Stock
Exchange LLC (``NYSE'' or the ``Exchange'') filed with the Securities
and Exchange Commission (the ``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
comments 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 proposes to amend Exchange Rule 1600 (New York Block
Exchange\SM\) (``NYBX\SM\'' or the ``Facility'') to provide for
simultaneous routing, rather than sequential routing as the Facility
currently operates, of appropriate volume from an NYBX order to attempt
to execute simultaneously against all available contra side liquidity
within the limit price of the order that is revealed on the initial
market evaluation, whether that liquidity (1) Is in the NYSE Display
Book[supreg] (``DBK''), displayed and undisplayed, (2) is in the
Facility, (3) consists of top-of-book contra side quotations displayed
on other automated trading centers that must be routed to in order to
avoid potential trade throughs (in compliance with Regulation NMS) or
(4) consists of top-of-book contra side quotations displayed on other
automated trading centers where no potential trade through is involved
and Regulation NMS does not require routing. There will no longer be an
initial routing of the full amount of the order (less any shares routed
to other automated trading centers to comply with Regulation NMS) to
the DBK in the hope that there will be some additional volume executed
(over and above the displayed and undisplayed contra side liquidity in
the DBK) against available contra side interest, if any, in the Capital
Commitment Schedule (``CCS'') of the Designated Market Maker provided
for in NYSE Rule 1000(d)(i). The text of the proposed rule change is
available at the Exchange's principal office, the Commission's Public
Reference Room, and the Exchange's Web site at http://www.nyse.com.
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 Exchange proposes to amend Exchange Rule 1600 (New York Block
Exchange\SM\) to provide for simultaneous routing, rather than
sequential routing as the facility currently operates, of appropriate
volume from an NYBX order to attempt to execute simultaneously against
all available contra side liquidity within the limit price of the order
that is revealed on the initial market evaluation, whether that
liquidity (1) Is in the DBK, displayed and undisplayed, (2) is in the
Facility, (3) consists of top-of-book contra side quotations displayed
on other automated trading centers that must be routed to in order to
avoid potential trade throughs (in compliance with Regulation NMS) or
(4) consists of top-of-book contra side quotations displayed on other
automated trading centers where no potential trade through is involved
and Regulation NMS does not require routing. The following is a
description of how the NYBX Facility currently operates, complete with
examples, followed by a description of the ``Proposed Change in the
Process,'' also with examples.
Current Operation of the Facility
As currently provided in NYSE Rule 1600, an order in the NYBX
Facility interacts with contra side liquidity in the DBK and the
Facility itself through a series of separate transactions that may
involve the order moving sequentially from one price level to another
(all within the limit price of the order) and/or back and forth between
the Facility and the DBK. In addition, if an NYBX order would execute
in the DBK or in the Facility at a price that may potentially trade
through a protected quotation of another automated trading center(s),
applicable volume from the order will be routed immediately to such
automated trading center(s) to assure compliance with Regulation NMS.
Further, when contra side liquidity is available in the DBK at prices
that are within the limit price of the NYBX order, the full amount of
the order (less any shares routed to other automated trading centers to
comply with Regulation NMS) is sent to the DBK in the hope that, in
addition to execution with the displayed and undisplayed contra side
liquidity in the DBK at the particular price, there will be some
additional execution with available contra side interest, if any, in
the CCS of the Designated Market Maker.
As the execution of the order proceeds, the Facility reevaluates
the market at various points to check for updated market data and
adjusts the routing of the remaining portion of the order accordingly.
Finally, after all available executions in the DBK and the Facility
have taken place, including the routing of appropriate volume to other
automated trading centers to prevent trade throughs of protected
quotations, any remaining portion of the order will be routed away for
execution with all remaining available top-of-book contra side
quotations within the limit price of the order displayed by other
automated trading centers even though not required by Regulation NMS.
The following examples demonstrate how NYBX orders are currently
processed prior to implementation of the proposed amendment. In the
examples, ``MTV'' stands for the optional, user-defined Minimum
Triggering Volume Quantity of an NYBX order provided for in NYSE Rule
1600.
NYBX Market Evaluation
NYBX (Sell orders):
5000 shares @ 21.00 (MTV = 100)
5000 shares @ 22.00 (MTV = 100)
DBK (Sell orders):
1000 shares @ 21.00 (hidden)
1000 shares @ 22.00
1000 shares @ 23.00
CHX (Sell orders):
1000 shares @ 21.00
BATS (Sell orders):
1000 shares @ 22.00
Scenario A: NYBX Buy order for 5000 shares at 21.00 (MTV = 100 shares)
Results (each number below represents a separate step):
1. 5000 shares routed to DBK at 21.00 and 1000 are executed at
21.00.
2. 4000 shares remain and are sent back to NYBX at 21.00.
3. Verify no market data updates.
4. 4000 shares execute in NYBX at 21.00.
The full amount of the above order is initially routed to DBK due
to the possibility of interaction with CCS interest. Note that no
orders were routed to other automated trading centers because (i) there
were no potential trade throughs that would violate Regulation
[[Page 58458]]
NMS and (ii) DBK and NYBX had priority for executions at 21.00 and
there were no shares left from the order to execute at that price on
CHX.
Scenario B: NYBX Buy order for 6500 shares at 21.00 (MTV = 100 shares)
Results (each number below represents a separate step):
1. 6500 shares routed to DBK at 21.00 and 1000 are executed at
21.00.
2. 5500 shares remain and are sent back to NYBX at 21.00.
3. Verify no market data updates.
4. 5000 shares execute in NYBX at 21.00.
5. Verify no market data updates.
6. 500 shares routed to CHX at 21.00 and all are executed at 21.00.
Again, the full amount of the order is initially routed to DBK and
no orders are initially routed to other automated trading centers
because there were no potential trade throughs that would violate
Regulation NMS. However, shares are routed to CHX at the end of the
sequence because all interest at 21.00 in both DBK and NYBX is
exhausted and additional shares at that price are available on CHX even
though Regulation NMS does not require shares to be routed there.
Scenario C: NYBX Buy order for 13500 shares at 22.00 (MTV = 100 shares)
Results (each number below represents a separate step):
1. 1000 shares routed to CHX at 21.00 (Reg. NMS) and all are
executed at 21.00. 12500 shares simultaneously routed to DBK at 21.00
and 1000 are executed at 21.00.
2. 11500 shares remain and are sent back to NYBX at 21.00.
3. Verify no market data updates.
4. 5000 shares execute in NYBX at 21.00.
5. Verify no market data updates.
6. 6500 shares remain and are routed to DBK at 22.00 and 1000 are
executed at 22.00.
7. 5500 shares remain and are sent back to NYBX at 22.00.
8. Verify no market data updates.
9. 5000 shares execute in NYBX at 22.00.
10. Verify no market data updates.
11. 500 shares routed to BATS at 22.00 and all are executed at
22.00.
In Scenario C, 1000 shares are initially routed to CHX at 21.00 to
eliminate the potential of a trade through of this protected quotation
(since the size and price limit of the order mean that contra side
liquidity in the DBK and the Facility at 22.00 will be executed
against) that is prohibited by Regulation NMS. The full amount of the
remaining portion of the order is simultaneously routed to the DBK at
21.00 even though only 1000 shares are available there at that price,
because of the potential to interact with CCS interest. Later in the
sequence of events, the full amount of the remaining order at that
point (6500 shares) is routed to the DBK at 22.00 for the same reason,
even though only 1000 shares are available there at that price. At the
end of the sequence, the routing of 500 shares to BATS at 22.00 is not
for the purpose of compliance with Regulation NMS (since no executions
at a higher price will be triggered by the size and price limit of this
order), but is made to access additional top-of-book contra side
liquidity at another automated market center because no additional
liquidity at that price is available in either the DBK or the Facility.
Scenario D: NYBX Buy order for 14500 shares at 23.00 (MTV = 100 shares)
Results (each number below represents a separate step):
1. 1000 shares routed to CHX at 21.00 (Reg. NMS) and all are
executed at 21.00. 1000 shares routed to BATS at 22.00 (Reg. NMS) and
all are executed at 22.00. 12500 shares simultaneously routed to DBK at
21.00 and 1000 are executed at 21.00.
2. 11500 shares remain and are sent back to NYBX at 21.00.
3. Verify no market data updates.
4. 5000 shares execute in NYBX at 21.00.
5. Verify no market data updates.
6. 6500 shares remain and are routed to DBK at 22.00 and 1000 are
executed at 22.00.
7. 5500 shares remain and are sent back to NYBX at 22.00.
8. Verify no market data updates.
9. 5000 shares execute in NYBX at 22.00.
10. Verify no market data updates.
11. 500 shares routed to DBK at 23.00 and all are executed at
23.00.
Scenario D is very similar to Scenario C, except that the increase
in order size and the increase in the limit price to 23.00 create a
potential trade through at 23.00 in the DBK of the 22.00 protected
quotation at BATS. Consequently, in addition to the 1000 shares that
are initially routed to CHX at 21.00 to eliminate the potential for a
trade through of that protected quotation that is prohibited by
Regulation NMS, an additional 1000 shares are initially routed to BATS
at 22.00 to eliminate the potential for a trade through of that
protected quotation as well. The remaining execution sequence is the
same as Scenario C except that the final 500 shares of the order are
routed to the DBK and executed at 23.00 because all lower contra side
prices in the market have been executed against.
Proposed Change in the Process
In practice, the fact that the NYBX order proceeds through a series
of steps that take place sequentially rather than simultaneously
results in the disappearance or the adjustment of a substantial portion
of the available contra side liquidity that shows up on the initial
market evaluation, before the NYBX order is able to execute against
that liquidity. Consequently, the purpose of the proposed amendment is
to capture a higher percentage of the available contra side liquidity
by attempting to execute simultaneously against all such liquidity
within the limit price of the order that is revealed on the initial
market evaluation, whether that liquidity (1) Is in the DBK (displayed
and undisplayed), (2) is in the NYBX or (3) consists of top-of-book
contra side quotations displayed on other automated trading centers.
The initial portion of the order routed to the DBK will no longer be
oversized in the hope of interacting with CCS interest, but will be
sized based on the total amount of displayed and undisplayed contra
side liquidity in the DBK that is available for execution within the
limit price of the order. The same principle (no oversizing) will
continue to be applicable to portions of the order that attempt to
execute against available contra side interest in the Facility and
against such interest that is displayed on other automated trading
centers.
As is the case with respect to the current operation of the
Facility and in compliance with Regulation NMS, applicable volume will
be routed immediately to execute against all protected quotations of
other automated trading centers that may potentially be traded through
by the NYBX order. However, the routing of applicable volume to other
automated trading centers for execution against available contra side
top-of-book quotations displayed by such markets where no potential
trade through is involved will no longer be delayed until the order has
executed with all available contra side liquidity in the DBK and the
Facility. Instead, such volume will be routed out at the same time that
other portions of the order attempt to execute against available contra
side liquidity in the Facility or are routed for execution to the DBK
or to other automated trading centers in compliance with Regulation
NMS.
In a situation in which the size of the NYBX order is less than the
total available contra side liquidity that is potentially executable
within the limit
[[Page 58459]]
price in the Facility and the DBK and at the top-of-book at other
automated trading centers, the ``tie breaker'' rules for routing
decision purposes will provide that (i) an execution in the DBK will
have priority over an execution at the same price in the Facility or on
another automated trading center, and (ii) an execution in the Facility
will have priority over an execution at the same price on another
automated trading center.
The following examples demonstrate how NYBX orders will be
processed under the proposed amendment. Assume the same NYBX initial
market evaluation as above and the same four scenarios.
Scenario A: NYBX Buy order for 5000 shares at 21.00 (MTV = 100 shares)
Results (each number below represents a separate step):
1. 1000 shares routed to DBK at 21.00 and all are executed at 21.00
4000 shares simultaneously executed in NYBX at 21.00
In Scenario A, no shares are routed to other automated trading
centers because (i) there are no potential trade throughs for this
price limit and order volume, and (ii) executions at 21.00 in DBK and
NYBX at 21.00 have priority over executions at CHX at the same price.
Even though the entire 5000 shares could execute within NYBX at 21.00
with no routing necessary, 1000 shares are routed to the DBK to execute
against contra side liquidity there at the same price because
executions in DBK have priority over executions in NYBX. Unlike the
current process, none of the routings to the DBK will be oversized
(i.e., the number of shares routed will not exceed the displayed and
undisplayed interest in the DBK at a given price). Therefore, only 1000
shares will be initially routed to the DBK instead of the full order
size of 5000 shares. Note that everything in Scenario A takes place
simultaneously under the proposed amendment, compared to four
sequential steps as the Facility currently operates.
Scenario B: NYBX Buy order for 6500 shares at 21.00 (MTV = 100 shares)
Results (each number below represents a separate step):
1. 1000 shares routed to DBK at 21.00 and all are executed at
21.00. 5000 shares simultaneously execute in NYBX at 21.00. 500 shares
simultaneously routed to CHX at 21.00 and all are executed at 21.00.
Again, only the amount of the displayed and undisplayed interest in
the DBK is routed to the DBK, and no orders are routed to other
automated trading centers for Regulation NMS compliance purposes (since
there are no potential trade throughs that would violate Regulation
NMS). However, shares are routed to CHX because all interest at 21.00
in both DBK and NYBX will be executed against by the order, and
additional shares at that price are available on CHX even though
Regulation NMS does not require shares to be routed there for
execution. Note that everything in Scenario B takes place
simultaneously under the proposed amendment, compared to six sequential
steps as the Facility currently operates.
Scenario C: NYBX Buy order for 13500 shares at 22.00 (MTV = 100 shares)
Results (each number below represents a separate step):
1. 1000 shares routed to CHX at 21.00 (Reg. NMS) and all are
executed at 21.00. 1000 shares simultaneously routed to DBK at 21.00
and all are executed at 21.00. 5000 shares simultaneously execute in
NYBX at 21.00. 1000 shares simultaneously routed to DBK at 22.00 and
all are executed at 22.00. 5000 shares simultaneously execute in NYBX
at 22.00. 500 shares simultaneously routed to BATS at 22.00 and all are
executed at 22.00.
In Scenario C, 1000 shares are routed to CHX at 21.00 to eliminate
the potential of a trade through at 22.00 of this protected quotation
(since the size and price limit of the order mean that contra side
liquidity in the DBK and the Facility at 22.00 will be executed
against) that is prohibited by Regulation NMS. The simultaneous routing
of 500 shares to BATS at 22.00 is not for the purpose of compliance
with Regulation NMS (since no executions at a higher price will be
triggered by the size and price limit of this order), but is made to
access additional top-of-book contra side liquidity at another
automated market center because no additional liquidity at that price
is available in either the DBK or the Facility. As before, only the
amount of the displayed and undisplayed interest in the DBK is routed
to the DBK. Note that everything in Scenario C takes place
simultaneously under the proposed amendment, compared to eleven
sequential steps as the Facility currently operates.
Scenario D: NYBX Buy order for 14500 shares at 23.00 (MTV = 100 shares)
Results (each number below represents a separate step):
1. 1000 shares routed to CHX at 21.00 (Reg. NMS) and all are
executed at 21.00. 1000 shares simultaneously routed to BATS at 22.00
(Reg. NMS) and all are executed at 22.00. 1000 shares simultaneously
routed to DBK at 21.00 and all are executed at 21.00. 5000 shares
simultaneously execute in NYBX at 21.00. 1000 shares simultaneously
routed to DBK at 22.00 and all are executed at 22.00. 5000 shares
simultaneously execute in NYBX at 22.00. 500 shares simultaneously
routed to DBK at 23.00 and all are executed at 23.00.
Scenario D is very similar to Scenario C, except that the increase
in order size and the increase in the limit price to 23.00 mean that a
full 1000 shares also need to be routed to BATS at 22.00 to eliminate
the potential for a trade through in the DBK at 23.00 of that protected
quotation in violation of Regulation NMS. Consequently, in addition to
the 1000 shares that are initially routed to CHX at 21.00 to eliminate
the potential for a trade through of that protected quotation that is
prohibited by Regulation NMS, an additional 1000 shares are
simultaneously routed to BATS at 22.00 to eliminate the potential for a
trade through of that protected quotation as well. Scenario D also
differs from Scenario C in that the final routing to DBK is against a
portion of the available contra side liquidity there at 23.00, since
all lower contra side prices in the market have been executed against.
Note that everything in Scenario D takes place simultaneously under the
proposed amendment, compared to eleven sequential steps as the Facility
currently operates.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \3\ of the
Securities Exchange Act of 1934 (the ``Act''), in general, and furthers
the objectives of Section 6(b)(5) \4\ in particular in that 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, 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. More specifically, the
Exchange believes that the proposed rule change will improve the
quality of the market and the outcomes for investors by capturing a
higher percentage of the available contra side liquidity through
attempting to execute
[[Page 58460]]
simultaneously against all such liquidity within the limit price of the
order that is revealed on the initial market evaluation, thereby
increasing the probability that a large order placed in the Facility
will achieve a complete and timely fill. The proposed rule change will
thereby contribute to perfecting the mechanism of a free and open
market and a national market system and is also consistent with the
protection of investors and the public interest.
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\3\ 15 U.S.C. 78f(b).
\4\ 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
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate 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 or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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 [email protected]. Please include
File Number SR-NYSE-2010-67 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2010-67. 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 Web site viewing and
printing 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 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-2010-67 and should be
submitted on or before October 15, 2010.
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\5\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\5\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-23924 Filed 9-23-10; 8:45 am]
BILLING CODE 8010-01-P