Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc. To Amended Rules 13 and 72

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41703; File No. SR-NYSE-99-24]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the New York Stock Exchange, Inc. To Amended Rules 13 and 72

August 4, 1999.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934

(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given

that on June 10, 1999, the New York Stock Exchange, Inc. (``NYSE'' or

``Exchange'') filed with the Securities and Exchange Commission

(``SEC'' or ``Commission'') the proposed rule change as described in

Items I, II and III below, which Items have been prepared by the NYSE.

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 proposed rule change consists of amendments to NYSE Rules 13

and 72 to define XPress orders and describe how such orders are to be

executed. Below is the text of the proposed rule change. Proposed new

language is in italics.

* * * * *

Rule 13 Definitions of Orders

XPress order

An order to buy or sell a security for no less than such number

of shares as the Exchange shall from time to time determine and no

more than the displayed size of an XPress quote, as defined below,

which order is to be executed in whole or in part at the price of

the XPress quote, if available, or at a better price if obtainable.

The portion not so executed shall be treated as cancelled.

An XPress quote is a quote so indicated by the Exchange. In

order to be indicated as an XPress quote, a published bid or offer

must be at the same price, for no less than the number of shares and

the minimum period of time that the Exchange shall from time to time

determine. If the XPress bid or offer price changes or the published

bid or offer size is less than such number of shares, the bid or

offer shall no longer be indicated as an XPress quote. (See also

Rule 72.50.)

The Exchange shall make known to its membership to minimum size

for XPress orders and the minimum size and time requirements for

XPress quotes.

Rule 72 Priority and Precedence of Bids and Offers

* * * * *

(f) Except as provided in .50 below, a sale shall remove all

bids from the Floor except that if the number of shares of stock or

principal amount of bonds offered exceeds the number of shares or

principal amount specified in the bid having priority or precedence,

a sale of the unfilled balance to other bidders shall be governed by

the provisions of these Rules as though no sales had been made to

the bidders having priority or precedence.

* * * * *

.50 XPress Orders.--An execution of an XPress order, in whole or

in part, shall not remove bids or offers from the Floor. Once an

XPress order has been represented in the Crowd, no part of the

XPress bid or offer against which the XPress order is to be executed

shall be withdrawn, except to provide price improvement to all or

part of the XPress order. When an XPress order has been executed in

part at an improved price, the remainder of such order shall be

executed at the XPress bid or offer up to the number of shares then

available, regardless of whether such number is less than the

minimum size for an XPress quote. All XPress orders shall be

executed in strict time priority with respect to each other. A

member who is providing a better price to an XPress order must trade

with all other market interest having priority at that price before

trading with the XPress order.

[[Page 43803]]

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 NYSE 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 these statements may be examined at the places specified in

Item IV below and is set forth in Sections A, B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

1. Purpose

As part of its continuing efforts to enhance participation in its

auction market, the Exchange proposes to create a new type of order,

known as an ``XPress Order.'' The Exchange believes this order type

responds to the needs of market participants for ``clean'' executions

when entering large-size orders in response to bids and offers which

have been displayed for a minimum time period. NYSE Rule 13 would be

amended to define XPress order and XPress quote. NYSE Rule 72 would be

amended to provide the requirements for executing XPress orders.

An XPress order is an order of a specified minimum size which is to

be executed against a displayed XPress quote, or at an improved price,

if obtainable. In order to be indicated as an XPress quote, a published

bid or offer must be for no less than the specified minimum share size

at the same price for no less than 30 seconds. The Exchange proposes to

initially set the minimum size for XPress orders and XPress quotes at

25,000 shares. Within six months after implementation, as experience is

gained with XPress orders, the NYSE proposes to reduce the minimum size

to 15,000 shares, unless experience indicates that it would not be

appropriate to do so. The 30 second minimum requirement for XPress

quotes would also be reviewed by the NYSE at such time, with

consideration given to possibly decreasing this minimum.

It is possible for one or both sides of a quote to be indicated as

XPress. If the XPress bid or offer price changes or the published bid

or offer size becomes less than the specified minimum size, the bid or

offer will no longer be indicated as an XPress quote. For example, if

there is an XPress offer of 40,000 shares at 50 and the offer changes

to 40,000 shares at 49\15/16\, the offer is no longer XPress, as it has

not been the same price for 30 seconds.

XPress orders will be delivered to the specialist's post via the

Exchange's automated order routing system. Multiple XPress orders in

the same stock will be executed in strict time priority with respect to

each other and with respect to other orders. The size of the XPress

order may not exceed the size of the XPress bid or offer against which

it is to be executed at the time of order entry. An XPress order is

guaranteed an execution at the XPress quote price up to the full size

of the displayed XPress quote, if available.

If an XPress order is received at the specialist's post and the

quote is no longer XPress, the XPress order will be cancelled. For

example, assume there is an XPress offer of 30,000 shares when an

XPress order to buy 25,000 shares is entered and a broker in the Crowd

buys 25,000 shares (i.e., takes 25,000 shares of the offer) before the

XPress order is received at the post. The XPress order will be

cancelled as the 5,000 share offer is less than the minimum size

required and therefore is no longer an XPress offer. however, if the

quote had been reduced in size from time of order entry, but was still

an XPress quote (i.e., still greater than minimum size), the full size

of the XPress order would be represented and be given an opportunity

for price improvement. Any portion of the XPress order not executed, at

either the XPress or an improved price, would be cancelled.

All or part of an XPress order may be executed at an improved

price, if available. An execution of an XPress order, in whole or in

part, does not remove bids or offers from the Floor. This means that an

XPress order that has been executed in part at an improved price

retains its priority \3\ (i.e., is first in line for execution) and

does not have to compete (i.e., be on parity) with newly entered bids

or offers at the XPress quote. For example, if 30,000 shares are

offered at 50\2/16\ (XPress), an XPress order could come in to buy

30,000 at 50\2/16\ and be partially executed at an improved price

(e.g., 15,000 at 50\1/16\). The remainder of the XPress order would

retain priority to be executed at 50\2/16\ (the XPress offer price) and

would not have to compete on parity with other subsequent bidders at

50\2/16\. (Without this proposed provision, Rule 72(f), which provides

that a trade clears the Floor, would apply; in which case, once 15,000

traded 50\1/16\, all bids and offers would be removed from the Floor

and a new auction would begin. If that were the case, the XPress bid to

buy the remaining 15,000 shares at 50\2/16\ would no longer have

priority and would be on a parity with any other bids made at that

price, thereby defining the purpose of the XPress order type.)

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\3\ Exchange Rules 71 and 72 provide that the first bid made at

the highest price has priority. Similarly, the first offer at the

lowest price has priority.

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Once the specialist has represented an XPress order in the Crowd,

no part of the XPress bid or offer against which the XPress order is to

be executed may be withdrawn, except to provide price improvement to

all or part of the XPress order. The remainder of such order would be

executed at the XPress bid or offer up to the number of shares then

available, regardless of whether such number is less than the minimum

size for an XPress quote.

For example, assume there is an XPress offer of 30,000 shares at 50

which consists of 20,000 shares offered by Broker A and 10,000 shares

offered by Broker B. If an XPress order to buy 25,000 shares arrives at

the post, the specialist will ask if anyone is willing to offer price

improvement to a 25,000 share XPress order to buy at 50. Broker B could

withdraw 10,000 shares offered at 50 and offer to sell 10,000 shares at

49\15/16\. The XPress order would then buy 10,000 shares at the

improved price of 49\15/16\. Broker A could not then withdraw 20,000

shares offered at 50 because the XPress order has already been

represented. The XPress order is entitled to 15,000 at 50 to complete

the order, even though the quote is now below the minimum size.

All or part of the balance of an XPress bid or offer could be

withdrawn after an XPress order has been executed and before any

subsequent XPress orders are represented.

A member who is providing a better price to an XPress order must

trade with all other market interest having priority at that price

before trading with the XPress order. For example, assume the market is

quoted 49\15/16\ bid for 5,000 shares and 60,000 shares offered at 50

which is an XPress offer. If an XPress order to buy 30,000 shares at 50

comes in and a broker in the Crowd offers to improve the price by

selling 30,000 shares at 49\15/16\, the broker must first trade with

the 5,000 share bid at 49\15/16\ which has priority. The XPress order

would then buy 25,000 shares at 49\15/16\ and would complete the order

by buying 5,000 shares at 50.

The effective date of the proposed rule change will be based on the

implementation of enhancements to NYSE systems as well as the state of

readiness of the member firm community. The preliminary target is to

[[Page 43804]]

complete NYSE systems enhancements to support XPress orders by the

third quarter of 2000.

2. Statutory Basis

The Exchange believes that the basis under the Act for this

proposed rule change is the requirement under section 6(b)(5) \4\ that

an 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 NYSE believes the

proposed rule change would perfect the mechanism of a free and open

market by permitting orders that meet the rule's requirements to

interact with exposed XPress bids and offers to the fullest extent

possible, thus providing more options for market participants. The

Exchange believes that the proposed rule change is designed to protect

investors and the public interest by requiring that bids and offers be

of a minimum size and be displayed for a minimum period of time before

becoming XPress, and thus should give brokers and non-XPress orders the

opportunity to interact with the quote before coming XPress eligible.

In addition, brokers may interact with an XPress order by providing

price improvement. The Exchange believes that the proposed rule change

should protect bids and offers on the book or in the Crowd that have

priority at an improved transaction price and all orders are executed

in time and price priority.

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\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

The Exchange 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

Within 35 days of the date of publication of this notice in the

Federal Register or within such longer period (i) as the Commission may

designate up to 90 days of such date if it finds such longer period to

be appropriate and publishes its reason for so finding or (ii) as to

which the self-regulatory organization consents, the Commission will:

(A) By order approve 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. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609.

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 will also be available for inspection and

copying at the principal office of the NYSE. All submissions should

refer File No. SR-NYSE-99-24 and should be submitted by September 1,

1999.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\5\

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\5\ 17 CFR 200.30-3(a)(12).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 99-20630 Filed 8-10-99; 8:45 am]

BILLING CODE 8010-01-M