2010-23924. Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by New York Stock Exchange LLC Relating to Execution Algorithm of NYBX Orders
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Start Preamble
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] Start Printed Page 58457notice 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.
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 ExchangeSM) (“NYBXSM” 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® (“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 ExchangeSM) 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 Start Printed Page 58458NMS 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 Start Printed Page 58459price 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 Start Printed Page 58460simultaneously 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.
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 rule-comments@sec.gov. 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.
Start SignatureFor the Commission, by the Division of Trading and Markets, pursuant to delegated authority.5
Florence E. Harmon,
Deputy Secretary.
Footnotes
[FR Doc. 2010-23924 Filed 9-23-10; 8:45 am]
BILLING CODE 8010-01-P
Document Information
- Comments Received:
- 0 Comments
- Published:
- 09/24/2010
- Department:
- Securities and Exchange Commission
- Entry Type:
- Notice
- Document Number:
- 2010-23924
- Pages:
- 58456-58460 (5 pages)
- Docket Numbers:
- Release No. 34-62955, File No. SR-NYSE-2010-67
- EOCitation:
- of 2010-09-20
- PDF File:
- 2010-23924.pdf