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Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by the New York Stock Exchange, Inc. Amending NYSE Rule 60 to Eliminate Depth Indications and Depth Conditions

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Start Preamble November 7, 2002.

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 October 22, 2002, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II and III 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 delete Supplementary Material .30 of NYSE Rule 60 (“Dissemination of Quotations”) relating to the dissemination of depth indications and depth conditions that reflect market interest in a security below the current published bid and above the current published offer. The text of the proposed rule change is available at the NYSE or at the Commission. Start Printed Page 69282

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 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

In March 2001, the Exchange amended NYSE Rule 60 to permit an Exchange specialist to indicate that there is additional market interest in a security not shown in the published quotation (i.e., interest to buy below the current published bid, or interest to sell above the current published offer).[3] The additional market interest reflected in the depth indication and depth condition could include the specialist's proprietary interest, orders the specialist has on his or her book, and other orders, such as percentage orders, which the specialist is representing as agent.

The dissemination of a depth indication or depth condition by a specialist is made on a “best efforts basis.” The specialist is allowed to use his or her professional judgment to determine whether disseminating additional market interest would be useful with respect to current conditions in the security or the market in general. Depth indications and depth conditions are purely informational in nature and, therefore, do not themselves constitute a “firm” quotation for purposes of NYSE Rule 60 or Rule 11Ac1-1 under the Act.[4]

The Exchange now proposes to discontinue the use of depth indications and depth conditions. Since the initiation of depth indication and depth condition, the Exchange has undertaken the development of other means to provide market participants with current and useful market information to provide greater transparency with respect to the actual depth of the market below the best bid and above the best offer. One such initiative is NYSE OpenBookTM, which was launched on January 24, 2002.[5] OpenBook provides a comprehensive view of NYSE limit order books for all Exchange-traded securities, enabling market participants to see aggregate limit order interest at price levels outside the displayed Exchange quotation.

The Exchange is currently developing another mechanism to provide greater transparency with respect to the existence of additional interest in Exchange-traded securities, which will consist of the display of a “liquidity quote” along with the best quote.[6] In the Liquidity Quote Proposal, the Exchange will be proposing to have liquidity quotes reflect aggregated trading interest at a specific price interval below the best bid or above the best offer. In addition, in the Liquidity Quote Proposal, the Exchange will be proposing that liquidity quotes are “firm” quotes for the purposes of NYSE and Commission rules. The Exchange therefore believes that the discontinuance of depth indications and depth conditions will allow the Exchange to utilize system capacity currently dedicated to depth conditions and depth indications to facilitate the development and testing of liquidity quotes.[7]

2. Statutory Basis

The Exchange believes that the statutory basis for this proposed rule change is Section 6(b)(5) of the Act,[8] which requires 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.

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

The foregoing proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act [9] and Rule 19b-4(f)(6) thereunder [10] because the proposal: (1) Does not significantly affect the protection of investors or the public interest; (2) does not impose any significant burden on competition; and (3) does not become operative for 30 days from the date of filing, provided that the NYSE has given the Commission written notice of its intent to file the proposed rule change at least five business days prior to the filing date of the proposed rule change or such shorter time as designated by the Commission.[11] At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

The Exchange believes that the advent of the OpenBook service and the Exchange's plan to introduce liquidity quote information will adequately replace information provided by depth indications and conditions and, therefore, the proposal is non-controversial.

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 Start Printed Page 69283communications 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 to File No. SR-NYSE-2002-54 and should be submitted by December 6, 2002.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[12]

J. Lynn Taylor,

Assistant Secretary.

End Signature End Preamble


3.  See Securities Exchange Act Release No. 44084 (March 16, 2001), 66 FR 16307 (March 23, 2001) (SR-NYSE-01-06).

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5.  For further details on NYSE OpenBookTM, see Securities Exchange Act Release No. 45138 (December 18, 2001), 66 FR 66491 (December 26, 2001) (order approving the establishment of Exchange fees for NYSE OpenBookTM).

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6.  On October 28, 2002, the NYSE filed with the Commission a proposed rule change to amend its rules to display additional quotations showing the depth of market. See File No. SR-NYSE-2002-55 (“Liquidity Quote Proposal”).

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7.  The Exchange intends to provide notice before discontinuing dissemination of the depth condition and depth indicator to members via a floor memorandum, subscribers via e-mail, and vendors by telephone. Telephone conversation between Donald Siemer, Director, Market Surveillance, NYSE, and Kelly Riley, Senior Special Counsel, Division of Market Regulation, Commission, dated November 5, 2002.

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11.  The NYSE has requested and the Commission has agreed to waive the five-day pre-filing notice requirement.

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[FR Doc. 02-28994 Filed 11-14-02; 8:45 am]