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Notice

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Rule 6.76A-Order Execution-OX and Proposing New Rule 6.88-Directed Orders

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Start Preamble August 10, 2009.

Pursuant to Section 19(b)(1) [1] of the Securities Exchange Act of 1934 (the “Act”) [2] and Rule 19b-4 thereunder,[3] notice is hereby given that, on August 5, 2009, NYSE Arca, Inc. (“NYSE Arca” 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 self-regulatory organization. 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 is proposing (i) new Rule 6.88 to describe Directed Orders, (ii) to amend Rule 6.76A to describe how Directed Orders are allocated upon execution, (iii) define Directed Order Market Makers, Order Flow Providers, and Directed Orders, and (iv) make other amendments to provide for Directed Orders. The text of the proposed rule change is attached as Exhibit 5 to the 19b-4 form. A copy of this filing is available on the Exchange's Web site at http://www.nyse.com, at the Exchange's principal office 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 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 Statutory Basis for, the Proposed Rule Change

1. Purpose

NYSE Arca proposes new Rule 6.88, Directed Orders, under which Market Makers may receive Directed Orders, and also proposes to amend Rule 6.76A to describe the allocation of Directed Orders upon execution. Additionally, the Exchange proposes to define Directed Orders, Order Flow Provider, and Directed Order Market Maker (“DOMM”), and make other rule modifications to provide for Directed Orders.

Proposed Rule 6.88, Directed Orders, is based on NYSE Amex Rule 964.1NY. It permits any Market Maker to receive Directed Orders, provided the Market Maker is quoting at the National Best Bid/Offer (“NBBO”) at the time of receipt. It also describes how Directed Orders are to be executed if the DOMM is not at the NBBO at time of receipt. Additionally, the proposed Rule requires a DOMM to meet a 90% quoting obligation in any class in which a Directed Order is received. The Exchange believes it is appropriate to oblige DOMMs to a higher quoting standard in return for the privilege of receiving directed order flow.

The Exchange is also proposing to amend Rule 6.76A the circumstances by which a DOMM may receive an allocation entitlement up to 40% of an incoming order if quoting at the NBBO at the time the NYSE Arca System Start Printed Page 41479receives a Directed Order. A DOMM will receive up to 40% of the remaining balance of an order, or the DOMM's share in the order of ranking, whichever is greater, provided that any Customer orders ranked ahead of the DOMM are satisfied first. However, if the DOMM is not at the NBBO, the order will be allocated as if it were not a Directed Order.

The Exchange is proposing new Rule 6.62(z) to define Directed Orders, and also new Rule 6.1A(a)(20) to define Directed Order Market Maker and 6.1A(a)(21) to define Order Flow Provider.

Lastly, the Exchange is proposing to modify Rule 6.82(d)(2)—Guaranteed Participation, to clarify that LMMs are entitled to a trade allocation in accordance with Rule 6.76A, and that LMMs are not entitled to any guaranteed allocation on Directed Orders that trade with a Directed Order Market Maker. If the DOMM is not quoting at the NBBO, but the LMM's quote is at the NBBO, the LMM will be entitled to a trade allocation in accordance with Rule 6.76A. The LLM will be entitled to the same allocation as currently applicable under Rule 6.76A.

The trade allocation described in Rule 6.76A is structured so that no order will be subject to a guaranteed allocation greater than 40% of its size after satisfying any Customer orders ranked ahead of any guaranteed recipient. Additionally, it would be considered a violation of just and equitable principals of trade and a misuse of non-public information for a Directed Order Market Maker to become aware of an impending Directed Order so as to improve the quote to momentarily match the NBBO, and then worsen the price of the quote following execution of the Directed Order.

2. Statutory Basis

The Exchange believes the proposed rule change is consistent with Section 6(b) of the Act [4] in general, and furthers the objectives of Section 6(b)(5) of the Act, in that it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest, as it will provide greater incentive for Directed Order Market Makers to quote at the NBBO, and thereby provide a more competitive market structure for investors in general.

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

Because the foregoing proposed rule change: (i) Does not significantly affect the protection of investors or the public interest; (ii) does not impose any significant burden on competition; and (iii) by its terms, does not 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 [5] and Rule 19b-4(f)(6) thereunder.[6]

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.

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

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-NYSEArca-2009-73. 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 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-NYSEArca-2009-73 and should be submitted on or before September 8, 2009.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7

Elizabeth M. Murphy,

Secretary.

End Signature End Preamble

Footnotes

6.  17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has complied with this requirement.

Back to Citation

[FR Doc. E9-19575 Filed 8-14-09; 8:45 am]

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