be as fair of a process as price improvement resulting from genuine
order competition in the auction market which can be verified by other
market participants at the point of sale.\391\ Two commenters insisted
that the Exchange supplement its proposal to grant floor brokers with a
similar ability to provide electronic price improvement to orders.\392\
Another commenter believed that if the specialist is willing to improve
the NYSE BBO, the specialist should display that price in its
quote.\393\
---------------------------------------------------------------------------

    \390\ See, e.g., IBAC Letters I and II, ICI Letter III,
Rutherfurd Letters I, III, and V, and Vanguard Letter.
    \391\ See Rutherfurd Letter III.
    \392\ See IBAC Letters I and II and ICI Letter III.
    \393\ See Vanguard Letter.
---------------------------------------------------------------------------

    The Commission believes that the ability of specialists to offer
price improvement to incoming orders is consistent with the
requirements of the Act. The Commission notes that NYSE specialists
today are permitted to provide price improvement to incoming orders in
the auction market. With this proposal, NYSE is providing specialists
with the ability to continue to offer price improvement in an
electronic environment, but only if the specialists satisfy certain
conditions. As noted above, specialists would be required to be
meaningfully represented in the BBO and to provide a minimum amount of
price improvement. The Commission also notes that Specialist Algorithms
could only offer price improvement to incoming marketable orders;
incoming orders that would improve the Exchange BBO would be quoted as
the new BBO. The Commission believes that permitting specialists to
algorithmically price improve marketable orders by certain minimum
amounts could increase the quality of its electronic market, and that
the condition that specialists be meaningfully represented in the bid
or offer might enhance depth and liquidity at the NYSE BBO.
2. Ability To Hit Bids or Take Offers
    In addition to offering price improvement to incoming marketable
orders, Specialist Algorithms could also generate trading messages that
would trade with the Exchange BBO. The Commission notes that NYSE has
proposed to implement safeguards that prohibit the Specialist
Algorithms from obtaining a time advantage over the public, by delaying
the processing of algorithmic messages to trade with the Exchange BBO.
The Commission believes that the capability of the Specialist
Algorithms to hit bids or take offers is designed to assure specialists
are on a level playing field with other market participants with
respect to their ability to interact with the Exchange BBO, and is
consistent with the requirements of the Act. Further, the Commission
notes that capability of the Specialist Algorithms to hit bids or take
offers must be consistent with their obligations under NYSE Rule 104
and Rule 11b-1 under the Act.
3. NYSE Rule 92
    NYSE Rule 92 reflects the fundamental tenet of agency law that an
agent must place its customer's interest ahead of its own proprietary
interest. In essence, Rule 92 prohibits an NYSE member from buying or
selling for its own account an Exchange-listed security when it knows
that it is holding a customer order that is executable at the same or
better price. NYSE has proposed to clarify when the Specialist
Algorithms would be deemed to have knowledge of an incoming order.
Specifically, NYSE has proposed that the Specialist Algorithm would not
be deemed to have knowledge of an incoming order, for purposes of Rule
92, if the Specialist Algorithm is designed and operated in a manner
that prevents its handling of an incoming order from being affected by
the receipt of subsequent orders in the same security. NYSE believes
that this amendment is necessary because there could be situations
where the Specialist Algorithms generate a quoting or trading message,
and before the Display Book system can process the message, the
Specialist Algorithms receive and process information about a
subsequent incoming order that is at the same or better price. The
Commission believes that the proposed amendment to Rule 92 is
consistent with the requirements of the Act, and should maintain the
same level of protection for customer orders in an electronic
environment as exists today in a manual environment.
4. Communicating With the Specialist Algorithm
    NYSE proposes to allow specialists to interact with the Specialist
Algorithms through a wired or wireless device that has been registered
with NYSE, such as a computer terminal or laptop, to activate or
deactivate a particular algorithm or adjust its parameters. NYSE also
proposes that specialist firms be required to create and maintain
records of all messages generated by the firms' wired or wireless
devices. The Commission believes that providing specialists with this
functionality would enhance their ability to function in an electronic
environment, and is consistent with the requirements of the Act. In
this regard, the Commission expects the Exchange to implement adequate
surveillance procedures and to engage in ongoing monitoring of the
wired and wireless devices to ensure that they are being used in a
manner consistent with the NYSE's rules, and the securities laws and
rules. NYSE is also requiring that specialists have an independent
third party auditor review on an annual basis the Specialist Algorithms
to ensure that they operate in accordance with all SEC and Exchange
rules, policies, and procedures. The Commission notes that the Exchange
has the responsibility under the Act to enforce compliance with the
Federal securities law and NYSE rules.\394\ The Commission expects NYSE
to review any reports, notes, analysis, documents and similar types of
materials from such independent auditing as part of the Exchange's
surveillance procedures.
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    \394\ See also note and Sections 6(b)(1) of the Act, 15 U.S.C.
78f(b)(1), and 19(g)(1) of the Act, 15 U.S.C. 78s(g)(1).
---------------------------------------------------------------------------

F. Changes to the Auction Market and New Order Types

    As part of the Hybrid Market, the Exchange has also proposed to
modify its auction market. Specifically, the Exchange is proposing a
new order type--the AL order--and changes to the way market orders (AM
orders) are handled on the floor to accommodate investors who wish to
have their orders exposed for price improvement. Under the proposal, AL
orders and AM orders would be automatically executed when the Exchange
quotation is at the minimum variation of one cent. Otherwise, these
orders would be placed in the Display Book system for an opportunity to
receive a better price than the Exchange BBO. If an AL order or an AM
order has not been executed after 15 seconds, it would be automatically
executed at the prevailing bid or offer, provided that automatic
executions are available. In addition, certain events could cause an AL
order or an AM order to automatically execute prior to the 15-second
period.
    NYSE's proposal to adopt the AL order and the AM order would offer
customers the option to seek price improvement for their orders in a
more rapidly-moving Hybrid Market. The Commission believes that these
features could improve execution quality for those customers who do not
seek an immediate execution, and generally increase the depth and
liquidity of NYSE's market. The Commission

believes the decision by NYSE to provide investors with the ability to
place AL and AM orders is within its discretion and consistent with the
requirements of the Act.

G. Intermarket Sweep Order

    To implement the requirements of Rule 600(b)(30) of Regulation
NMS,\395\ the Exchange proposes to amend NYSE Rule 13 to adopt a new
order type--an Intermarket Sweep order. As proposed, an Intermarket
Sweep order would be a limit order designated for automatic execution
in a particular security that meets the following requirements: (1) It
is identified as an intermarket sweep in the manner prescribed by the
Exchange; and (2) simultaneously with the routing of the Intermarket
Sweep order to the Exchange, one or more additional limit orders, as
necessary, are routed to execute against the full displayed size of any
protected bids (offers) in the case of a limit order to sell (buy),
with a price that is superior to the limit price of the limit order
identified as an Intermarket Sweep order. These additional routed
orders must be identified as Intermarket Sweep orders. An Intermarket
Sweep order would be immediately and automatically executed against the
displayed bid (offer) up to its full size in accordance with and to the
extent provided by NYSE Rules 1000 through 1004, and would then sweep
the Display Book system, as provided in NYSE Rule 1000(d)(iii), with
the portion not so executed to be immediately and automatically
cancelled. The Commission believes that NYSE's proposed definition of
Intermarket Sweep order is designed, among other things, to meet the
requirements of Regulation NMS,\396\ and to perfect the mechanism of a
free and open market and a national market system and to protect
investors and the public interest, and thus, is consistent with the
requirements of the Act.
---------------------------------------------------------------------------

    \395\ 17 CFR 242.600(b)(30).
    \396\ An Intermarket Sweep order would allow market participants
to simultaneously route orders to multiple markets at multiple price
points. An Intermarket Sweep order is defined in Regulation NMS as
``a limit order for an NMS stock that meets the following
requirements: (i) When routed to a trading center, the limit order
is identified as an intermarket sweep order; and (ii) simultaneously
with the routing of the limit order identified as an intermarket
sweep order, one or more additional limit orders, as necessary, are
routed to execute against the full displayed size of any protected
bid, in the case of a limit order to sell, or the full displayed
size of any protected offer, in the case of a limit order to buy,
for the NMS stock with a price that is superior to the limit price
of the limit order identified as an intermarket sweep order. These
additional routed orders also must be marked as intermarket sweep
orders.'' See id.
---------------------------------------------------------------------------

H. Implementation Plan

    NYSE proposed to implement the Hybrid Market in four stages over a
period of months, to allow its members to familiarize themselves with
these functionalities and to perform tests on its systems. As noted
above, the Pilot implemented testing of the initial stage of the Hybrid
Market on a temporary basis. The Commission believes that the staggered
implementation would allow a gradual transition from the current
auction market model to the Hybrid Market.\397\ Further, the Commission
believes that the implementation plan would provide NYSE the
opportunity to test the changes to its systems. The Commission believes
that the proposed implementation plan is consistent with the
requirements of the Act. Due to the phased implementation of the Hybrid
Market, NYSE represented that it will provide Information Memoranda to
its members and update its online rulebook and Web site accordingly
during each phase. The Commission believes that the Information
Memoranda and web site updates should provide NYSE members with
reasonable notice of and clarification on which rules or portions
thereof will be effective during a particular implementation phase of
the Hybrid Market.
---------------------------------------------------------------------------

    \397\ If there is any delay in the implementation plan, the
Commission expects the Exchange to consider whether additional rule
changes would need to be filed with the Commission.
---------------------------------------------------------------------------

I. Interpretive Issues

    The Exchange has requested that the Commission extend its previous
approval of certain interpretations of NYSE rules as they relate to
automatic executions that occur with specialists pursuant to NYSE Rule
1001(a)(iv).\398\ Specifically, pursuant to NYSE Rule 1001(a)(iv),
specialists are required to take the contra side of an automatic
execution against the published quotation, even if the specialist's
interest was not part of such quotations. This requirement to take the
contra side of certain automatic executions may be inconsistent with
other NYSE rules or may lead to additional obligations by the
specialist. Accordingly, NYSE requested and the Commission approved the
following interpretations.
---------------------------------------------------------------------------

    \398\ See note supra.
---------------------------------------------------------------------------

    1. NYSE Rule 123A.40. The specialist would not be required to fill
any stop orders elected by the execution of an Auto Ex Order at the
price of the electing sale in any instance where the specialist was
required by NYSE Rule 1001(a)(iv) to take the contra side of the
automatic execution.
    2. NYSE Rule 91. Because the specialist does not accept an Auto Ex
Order for execution or act as agent for such order, the transaction
confirmation requirements for NYSE Rule 91 would not apply in any
instance where the specialist is the contra party to an automatic
execution.
    3. NYSE Rule 104. NYSE Rule 104 contains the specialist's
affirmative and negative obligations, and restricts the specialist's
ability to purchase stock on direct plus ticks or see on direct minus
ticks. The Exchange proposed that any instance in which the specialist
is effecting a direct tick transaction only because he or she has been
required to assume the contra side of an automatic execution pursuant
to NYSE Rule 1001(a)(iv) shall be deemed a ``neutral'' transaction for
purposes of NYSE Rule 104 and shall be deemed not a violation of the
rule. According to the Exchange, it believes this interpretation was
appropriate because the specialist is not setting the price, but is
simply being required to trade at a price set by other market
participants.
    The Commission finds that these interpretations are consistent with
the requirements of the Act because they would allow the specialist to
provide liquidity in certain situations without triggering other rules
or obligations. As noted above, the Commission previously approved
these interpretations in the approval of Direct+.\399\ The Commission
believes that they should promote just and equitable principles of
trade and protect investors and the public interest because they should
assist in the execution of Auto Ex Orders.
---------------------------------------------------------------------------

    \399\ See note 203 supra.
---------------------------------------------------------------------------

V. Accelerated Approval of Amendment Nos. 6, 7, and 8

    As set forth below, the Commission finds good cause to approve
Amendment Nos. 6, 7, and 8 to the proposed rule change, as amended,
prior to the thirtieth day after the amendments are published for
comment in the Federal Register pursuant to section 19(b)(2) of the
Act.
    In Amendment No. 6, NYSE proposes to amend the rules that would
allow specialists to provide price improvement to incoming orders.
Specifically, NYSE proposed to reinstate the requirement that the
specialist be represented in the bid (offer) in order to provide price
improvement.\400\ In

Amendment No. 6, NYSE proposed to require specialists to be represented
in the bid (offer) in a ``meaningful amount,'' which it proposes to
define as a minimum of 1,000 shares for most securities. The Commission
notes that NYSE proposes to further amend this provision in Amendment
No. 8, as described below. Finally, the Exchange amended Rule 104 to
state that specialists may only provide price improvement to incoming
orders that are marketable.
---------------------------------------------------------------------------

    \400\ In the Second Notice, NYSE proposed to require specialists
to be represented in the bid (offer) by the lesser of 10,000 shares
or twenty percent of the size of the market on the side which the
transaction would take place. In the Third Notice, NYSE proposed to
eliminate this requirement to be represented in the bid (offer).
---------------------------------------------------------------------------

    The Commission finds good cause to accelerate approval of these
changes prior to the thirtieth day after publication in the Federal
Register. The Commission finds that prohibiting specialists from
providing price improvement to non-marketable orders should provide
investors with more current information regarding the prices at which
other investors are willing to trade.
    In Amendment No. 6, NYSE also proposes to limit the ability of
interest in the floor broker agency interest file to trade on parity
with orders on the Book outside of the Exchange BBO. Specifically,
floor brokers would be required to designate the size that it would
display should a price outside of the BBO move to the BBO. The size
designated for display would be permitted to trade on parity with
orders on the Book during a sweep at the clean-up price. The size
designated to be placed in reserve (i.e., remain undisplayed) would
yield to displayed interest.
    The Commission finds good cause to accelerate approval of this
change prior to the thirtieth day after publication in the Federal
Register because the proposed change limits the ability of undisplayed
interest to trade with displayed interest, which should enhance the
execution of orders displayed on the Book, and may provide incentives
to floor brokers to increase the size of interest eligible for display.
    In Amendment No. 7, NYSE proposes to modify to its proposed changes
to its Rule 92. Specifically, NYSE proposes to define when a specialist
has knowledge for purposes of the rule in the context of the Specialist
Algorithm. Specifically, a specialist would not be deemed to have
knowledge of an order that is received while the Specialist Algorithm
is transmitting a quoting or trading message based on the knowledge of
an earlier order, if the Specialist Algorithm is designed and operated
in a manner that prevents a quoting or trading message from being
affected by the knowledge of the later order.
    The Commission finds good cause to accelerate approval of this
change prior to the thirtieth day after publication in the Federal
Register because it better defines the scope of knowledge for purposes
of the Specialist Algorithm. The Commission believes that the change is
narrowly tailored to this specific circumstance to ensure that
specialists cannot trade for their own accounts when they have
knowledge of an order.
    In addition, NYSE proposes to amend its Rule 13.30 and the
definition of stop orders to reflect that elected stop orders in the
Display Book system would be eligible for automatic execution in
Direct+.\401\ This change conforms NYSE's Hybrid Market proposal to
changes proposed by NYSE in an earlier filing.\402\ Accordingly, the
Commission finds good cause to accelerate approval of this change
because it updates NYSE's proposal to make it consistent with
previously filed rule changes. Finally, NYSE proposes to amend its rule
text to correct typographical errors, reflect other rule changes that
have been approved by the Commission, and further clarify its rules.
For example, NYSE modified its definition of All or None Order in its
Rule 13 to reflect current NYSE rule text, amended other definitions to
reflect new citations to Regulation NMS, and amended NYSE Rule 60(e) to
clarify that Autoquote will automatically update the NYSE BBO to
reflect floor broker agency interest and specialist interest as well as
non-marketable limit orders. The Commission finds good cause to
accelerate approval of these changes prior to the thirtieth day after
publication in the Federal Register because they better clarify the
NYSE's rules, which should assist members' ability to comply with their
requirements, and assist investors in understanding their application
and scope.
---------------------------------------------------------------------------

    \401\ The Commission notes that NYSE proposed further changes to
these rules and NYSE Rule 76 regarding stop orders in Amendment No.
8.
    \402\ See Securities Exchange Act Release No. 52362 (August 30,
2005), 70 FR 53701 (September 9, 2005).
---------------------------------------------------------------------------

    Finally, in Amendment No. 8, NYSE proposes to: (1) Amend proposed
NYSE Rules 13 and 124 to specify that a round lot portion of a PRL
order is an Auto Ex Order and that the odd lot portion of a PRL order
would be executed in the Odd Lot Execution System at the same price as
the round lot portion of the PRL; (2) amend proposed NYSE Rule 13 to
reflect that stop orders and stop limit orders may still be represented
manually by a floor broker in the Crowd; (3) amend the definition of
IOC order in proposed NYSE Rule 13 to: (a) Propose an IOC order that is
designed to be in compliance with Regulation NMS; (b) specify that NYSE
IOC orders would be eligible to be routed away during a sweep; and (c)
eliminate the previously proposed changes to the treatment of ITS
Commitments; \403\ (4) amend the definition of Intermarket Sweep order
in proposed NYSE Rule 13 to permit such order to sweep the Display Book
system and then immediately cancel any portion remaining unexecuted;
(5) amend proposed NYSE Rule 36 to state that a specialist may only use
a wired or wireless device that has been registered with the Exchange
to communicate with the Specialist Algorithms and provide that
specialist firms must create and maintain records of all messages
generated by the Specialist Algorithm; (6) amend proposed NYSE Rule 60
to: (a) Set forth the instances during which Autoquote will update the
quote even if automatic executions are not available; (b) set forth the
instances during which Autoquote will update the quote when Autoquote
and automatic execution are suspended and disseminate a 100 share quote
in certain situations; and (c) propose to use an indicator when the
NYSE quote is not available for automatic execution due to a gapped
quotation or LRP to signify that the NYSE quote is not firm; (7) amend
proposed NYSE Rule 70.20 to: (a) Permit a floor broker to leave the
Crowd without canceling its floor broker agency interest file to
recharge its handheld device and (b) specify the procedures for
entering interest in the floor broker agency interest file before the
open; (8) amend proposed NYSE Rule 72 to specify the priority and
parity rules for instances when there are shares remaining after a
sweep that triggers an LRP; (9) amend NYSE Rule 76 to reflect that it
would not apply to elected stop or stop limit orders other than those
manually represented in the Crowd by a floor broker; (10) amend
proposed NYSE Rule 104 to: (a) Permit specialists to manually layer
proprietary interest in the specialist interest file; (b) permit
specialists to enter certain quoting messages when automatic executions
and Autoquote are suspended; (c) amend the definition of ``meaningful
amount'' for purposes of determining when a specialist could provide
price improvement; and (d) require specialists to hire independent
auditors to review their algorithms on an annual basis; (11) amend
proposed NYSE Rule 123A.30 to: (a) Provide

systematic conversion of CAP-DI orders on the same side as a specialist
when the specialist is bidding (offering) or trading and an automatic
execution occurs against the specialist's proprietary interest and (b)
clarify the execution of contra-side elected and converted CAP-DI
orders; (12) amend proposed NYSE Rule 123F to codify that NYSE may
execute an AL order or AM order at a price that matches a better away
market; (13) amend proposed NYSE Rule 1000 to: (a) Clarify that
automatic executions will resume in the same manner as Autoquote; (b)
prohibit short sale orders, except those for Regulation SHO pilot
securities, from sweeping the Display Book system; (c) eliminate the
provision that would have suspended the operation of Direct+ when an
away market disseminates a better quote; (d) eliminate the proposal
that would have permitted automatic executions to continue while the
specialist reports a block trade until the quote decremented to 100
shares; (e) specify the process for determining when a high-priced
security would be eligible for automatic executions; (f) specify that
automatic executions would be suspended on one side of the market when
a bid (offer) is outside the MLRP; (g) specify that any shares
remaining after an execution in IOC orders, NYSE IOC orders, or
Intermarket Sweep orders would be cancelled after sweeping the Display
Book system; and (h) clarify that auto ex limit orders, except IOC
orders, that are not able to be immediately executed due to a
suspension of Direct+ would be placed in the Book; and (14) amend Rule
1001.
---------------------------------------------------------------------------

    \403\ See also note 22 supra.
---------------------------------------------------------------------------

    The Commission finds good cause to accelerate approval of these
changes prior to the thirtieth day after publication in the Federal
Register for the reasons discussed below. The Commission notes that
many of the changes proposed in Amendment No. 8 were previously
disclosed in earlier amendments and notices and the Pilot. The
Exchange, in Amendment No. 8, merely proposes to codify these
requirements in its rules, which the Commission believes should ensure
that market participants are fully apprised on how the Hybrid Market
would operate and ensure that NYSE rules are complete. Specifically,
NYSE proposes the following changes, which were published in one of the
three Hybrid Market notices or the Pilot.
    1. NYSE proposes to amend proposed NYSE Rules 13 and 124 to reflect
the execution of PRL orders, which was discussed in both the Second and
Third Notices. In the Second Notice, NYSE proposed to amend NYSE Rule
124 to reflect that the round lot portion of a PRL order would be
automatically executed in Direct+. In Amendment No. 8, NYSE proposes to
make a conforming change to NYSE Rule 13. In the Third Notice, NYSE
represented that the odd lot portions of PRL orders would be executed
in the Odd-Lot Execution System. In Amendment No. 8, NYSE proposes to
reflect this language in its Rule 124 and to state that the odd lot
portion of a PRL would be executed at the same price as the round lot
portion.
    2. NYSE proposes to amend its Rules 60(e)(iv)(a) and 1000(c) to
specify that when the NYSE bid (offer) is outside the MLRP range and
such MLRP has not yet been reached, automatic executions on that side
of the market would not be available but Autoquote would remain active.
NYSE discussed this aspect of the Hybrid Market in its Third Notice.
    3. NYSE proposes to add language to its Rule 1000(b) to provide
that automatic executions would resume in the same manner as Autoquote
as set forth in proposed NYSE Rule 60(e). This process was discussed in
the Second Notice.
    4. NYSE proposes to specify in its Rule 70.20(j) that a floor
broker may enter interest in its floor broker agency interest file
prior to the open regardless of its location on the floor. The floor
broker, however, must be in the Crowd at the open in order to
participate. NYSE discussed this provision in the Third Notice.
    5. NYSE proposes to amend its Rule 123F to codify that NYSE may
execute an AL order or AM order at a price that matches a better away
market. NYSE originally proposed this function in the Third Notice.
    6. NYSE proposes to amend NYSE Rule 1000 to provide that short sale
orders must comply with Commission Rule 10a-1 and Exchange Rule 440B,
which would prohibit short sale orders, other than orders for those
securities included in the Regulation SHO pilot, from sweeping the
Display Book system. The NYSE proposed this restriction in the Second
Notice.
    7. Proposed NYSE Rule 13--Stop and Stop Limit Orders. In Amendment
No. 8, NYSE proposes to permit floor brokers to continue to represent
stop and stop limit orders in the Crowd. NYSE originally proposed this
change in the Pilot. The Commission finds good cause to accelerate
approval of this change because it could provide investors with an
additional means to have their orders represented on NYSE and is
consistent with NYSE's current rule.
    8. NYSE proposes to amend its Rule 104 to allow specialists to
manually place interest in the specialist interest file to ensure that
the specialist would be able to place its interest in the Display Book
system if its algorithm is not operating. NYSE originally proposed this
provision in the Pilot. The Commission finds good cause to accelerate
approval of this change because it should ensure that specialists can
continue to participate in the Hybrid Market and fulfill their
obligations to maintain a fair and orderly market.
    9. NYSE proposes to amend NYSE Rule 76 to provide that its
requirements would not apply to elected stop or stop limit orders other
than those represented in the Crowd. NYSE originally proposed this
change in the Pilot. The Commission finds good cause to accelerate
approval of this change because it reflects the change NYSE proposes
with regard to the automatic execution of elected stop and stop limit
orders in the Display Book system.
    The Commission also finds good cause to accelerate approval of the
other changes proposed in Amendment No. 8 for the reasons discussed
below.
    10. Proposed NYSE Rule 13. Definition of IOC. In Amendment No. 8,
NYSE proposes to amend its definition of IOC order. As originally
proposed, NYSE defined two types of IOC orders--one that would sweep
the Display Book system after trading with interest at the BBO and
could be routed to away markets if such away market is displaying a
better price (this order would now be called a NYSE IOC order), and ITS
Commitments that would only trade with interest displayed at the BBO.
In Amendment No. 8, NYSE proposes to remove its proposed changes
relating to ITS Commitments because its current rule needs to remain in
effect in order to comply with the provisions of the ITS Plan.\404\
NYSE also proposes to allow another type of IOC order to be entered on
the Exchange for purposes of Regulation NMS. This type of IOC order
would be permitted to sweep the Display Book system but would not be
routed to away markets if such away market displays a price better than
the NYSE BBO or sweep clean up price. In such circumstances, the IOC
order (or residual if a portion is executed at the NYSE BBO) would be
cancelled. The Commission finds good cause to accelerate approval of
this change because it would provide investors with a means to
immediately access NYSE liquidity without relying on NYSE to access
away markets' liquidity, and is

designed to be consistent with Regulation NMS.
---------------------------------------------------------------------------

    \404\ See also note 22 supra.
---------------------------------------------------------------------------

    11. Proposed NYSE Rule 13. Definition of Intermarket Sweep Order.
In Amendment No. 8, NYSE proposes to amend its definition of
Intermarket Sweep Order to provide that this type of order may sweep
the Display Book system but would not be routed to away markets that
display a better quote. In such circumstances, the Intermarket Sweep
would be cancelled. The Commission finds good cause to accelerate
approval of this change because it is designed to be consistent with
Regulation NMS.
    12. Proposed NYSE Rule 36. In Amendment No. 8, NYSE proposes to
amend its Rule 36 relating to the means by which specialists on the
floor can communicate with their Specialist Algorithms. NYSE had
originally proposed language to amend its Rule 36 in the Third Notice.
In Amendment No. 8, NYSE limits the types of communications that may be
transmitted over a wired or wireless device and limits where the
communications can be sent to ensure that these communications are
consistent with NYSE's current telephone policy. The Commission finds
good cause to accelerate approval of this change because it allows NYSE
to control the ability of specialists on the floor to communicate off
the floor. NYSE also proposes that specialist firms create and maintain
records of all messages generated by the firms' wired or wireless
devices. The Commission finds good cause to accelerate approval of this
requirement because it codifies in the rules the specialist firms'
recordkeeping obligations to comply with Exchange and SEC rules.
    13. Proposed NYSE Rule 60. In Amendment No. 8, the NYSE proposes
several changes. First, NYSE proposes to identify quotations that are
disseminated when automatic executions and Autoquote are suspended by a
LRP or gapped quotation as non-firm. The Commission finds good cause to
accelerate approval of this change because it will provide investors
with more accurate information about the state of the NYSE quotation.
Next, NYSE proposes to update the quote in high-priced securities even
though automatic executions are not available. First, NYSE would keep
Autoquote active when an order or a cancellation of an order arrives
that would not result in a locked or crossed market in a high-priced
security or a manual execution takes place in such security. Second, if
there is a cancellation of the Exchange best bid (offer) in a high-
priced security when the market in such security is internally locked
or crossed, and autoquoting of the next best bid (offer) would create a
locked or crossed market on the Exchange, NYSE would automatically
generate a quote of 100 shares at the bid (offer) price that existed at
the time of the cancellation. The Commission finds good cause to
accelerate approval of this change because it would provide investors
with additional quotation data in high-priced securities. Finally, the
Exchange proposes to update its quote in the following situations even
though Autoquote is suspended due to an LRP or a gapped quotation, and
automatic executions are not available: (1) If part of the existing
Exchange best bid (offer) cancels, the Exchange would use Autoquote to
update its quote to reflect the remaining volume; (2) if the entire
existing Exchange best bid (offer) cancels, the Exchange would
automatically generate a quote of 100 shares at the bid (offer) price
that existed at the time of the cancellation; or (3) if there is a
cancellation of the Exchange best bid (offer) when the market is
internally locked or crossed, and autoquoting of the next best bid
(offer) would create a locked or crossed market on the Exchange, NYSE
would automatically generate a quote of 100 shares at the bid (offer)
price that existed at the time of the cancellation. The Commission
finds good cause to accelerate approval of this change because it would
provide investors with additional quotation data during the time when
Autoquote and automatic executions are otherwise suspended and would
alert investors that a previously disseminated quotation had been
cancelled.
    14. Proposed NYSE Rule 70.20. NYSE proposes to permit floor brokers
to leave the Crowd for short periods of time to recharge their handheld
devices. The Commission finds good cause to accelerate approval of this
change because it reflects a reasonable accommodation to allow floor
brokers to ensure that their equipment is operable while permitting
them to continue to represent their customers.
    15. Proposed NYSE Rule 72. In Amendment No. 8, NYSE proposes to
specify the priority and parity of residual shares when a LRP has been
triggered. The Commission finds good cause to accelerate approval of
this change because it provides specificity to the execution of orders
during these limited situations and is generally consistent with the
Exchange's current rules.
    16. Proposed NYSE Rule 104. In Amendment No. 8, NYSE proposes to
make several changes to its Rule 104. First, NYSE proposes to amend
what it would consider to be a ``meaningful amount'' of shares that a
specialist must be represented in the BBO for purposes to determining
when a specialist can provide price improvement to an incoming order.
Specifically, NYSE proposes to define a ``meaningful amount'' as at
least 1,000 shares for the 100 most active securities on the Exchange,
based on the average daily volume, and at least 500 shares for all
other securities. NYSE would disseminate, at least quarterly, the list
of the 100 most active securities. In Amendment No. 8, NYSE proposes to
set the minimum number of shares for all securities rather than its
previous proposal, which was not specific as to all securities. The
Commission believes that having the minimums set forth in the rule for
all securities should ensure that specialists can comply with the
rule's requirements and ensure that all market participants are aware
of the instances when a specialist would be allowed to price improve
incoming marketable orders. Accordingly, the Commission finds good
cause to accelerate approval of this change. Second, NYSE proposes to
permit specialists to enter certain quoting messages when automatic
executions and Autoquote are suspended. Specifically, specialists would
be permitted to enter quotes that are outside of the Exchange's BBO,
and manually enter quotes at prices that are within a previously-
established locking or crossing quotation. The Commission finds good
cause to accelerate approval of this change because it could enable
specialists to add liquidity in preparation for the after-market and
assist specialists in satisfying their obligation to make markets with
appropriate depth and price continuity. Finally, NYSE proposes to
require specialists to hire independent third party auditors to review
their algorithms on an annual basis to ensure that the algorithms are
operating in accordance with Federal securities laws and NYSE rules.
The Commission finds good cause to accelerate approval of this change
because it could assist specialists and the Exchange in monitoring the
operation of the Specialist Algorithms.\405\
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    \405\ See Section IV(E)(4), supra.
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    17. Proposed NYSE 123A.30. In Amendment No. 8, NYSE proposes to
provide for the systematic conversion of marketable CAP-DI orders on
the same side as a specialist when a specialist quotes or trades and an
automatic execution occurs against the specialist's

proprietary interest. The Commission finds good cause to accelerate
approval of this change because it should ensure the proper execution
of CAP-DI orders when the specialist is trading. In addition, NYSE
added language to its rule to specify the manner of execution of
contra-side elected and converted CAP-DI orders when an automatic
execution occurs against the Exchange BBO and when an Auto Ex Order
sweeps the Display Book system. The Commission finds good cause to
accelerate approval of this change because it clarifies in the NYSE
rules how executions of contra-side CAP-DI orders occur.
    18. Proposed NYSE Rule 1000. In Amendment No. 8, NYSE proposes to
make several changes to its Rule 1000. First, NYSE proposes to
eliminate the provision that would have suspended automatic executions
when another market disseminated a better quotation. The Commission
finds good cause to accelerate approval of this change because this
provision was inconsistent with NYSE's proposal to immediately route
orders to markets that display quotes better than NYSE's displayed
quote. Second, NYSE is eliminating its proposal to allow automatic
executions to continue while the specialist manually reports a block
trade that involves orders on the Display Book system until the NYSE
quote decremented to 100 shares. NYSE proposes to suspend automatic
executions as soon as the reporting of the block transaction begins.
The Commission finds good cause to accelerate approval of this change
because when the specialist manually reports a block trade that
involves orders on the Display Book system, the NYSE quotation is not
updated to reflect new quotations, orders, or cancellations. Since the
NYSE quote that is disseminated when a block trade that involves orders
on the Display Book system is manually reported may not reflect the
current state of the market, the Commission believes it is appropriate
in that situation for the Exchange to discontinue automatic executions.
Third, NYSE proposes to amend the process for determining when a high-
priced security would be eligible for automatic execution.
Specifically, NYSE proposes to look at the closing price of a security
(or if the security did not trade during the day, then the closing
bid), and if the closing price/closing bid is $300.00 or more, then
automatic executions would not be available on the next trading day on
either side of the market. The Commission finds good cause to
accelerate approval of this change because it better defines the
process by which NYSE would determine the availability of automatic
executions for high-priced securities. Fourth, NYSE proposes to specify
in its rule that any shares remaining after the execution of an IOC,
NYSE IOC or Intermarket Sweep order would be cancelled. The Commission
finds good cause to accelerate approval of this change because it
codifies the handling of these types of orders in the NYSE rules.
Fifth, NYSE proposes to amend NYSE Rule 1000 to clarify that certain
Auto Ex Orders that are not able to be automatically executed due to
the suspension of automatic executions would be placed on the Book. The
Commission finds good cause to accelerate approval of this change
because it provides specificity in NYSE rules regarding how orders
would be handled.
    19. Proposed NYSE Rule 1001. In Amendment No. 8, NYSE proposes to
eliminate language that it had originally proposed in its Rule 1001(iv)
to clarify instead in NYSE Rule 70.20(f) that the floor broker would be
held to all executions involving its agency interest files, including
interest that the floor broker does not cancel when leaving the Crowd.
The Commission finds good cause to accelerate approval of this change
because floor brokers would be responsible for executions against
interest in their files and would be responsible for ensuring that
their files reflect accurate information. Accordingly, there is no need
for the additional language originally proposed by NYSE to Rule
1001(iv).

VI. Solicitation of Comments on Amendment Nos. 6, 7, and 8

    Interested persons are invited to submit written data, views and
arguments concerning Amendment Nos. 6, 7, and 8, including whether such
amendments are 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_ADDRESS>Please include

File Number SR-NYSE-2004-05 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2004-05. 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. 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-2004-05 and should be submitted on or before April
21, 2006.

VII. Conclusion

    For the foregoing reasons, the Commission finds that the proposed
rule change, as amended, is consistent with the Act and the rules and
regulations thereunder applicable to a national securities exchange,
and, in particular, with sections 6(b)(5) of the Act \406\ and 6(b)(8)
of the Act.\407\
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    \406\ 15 U.S.C. 78f(b)(5).
    \407\ 15 U.S.C. 78f(b)(8).
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    It Is Therefore Ordered, pursuant to section 19(b)(2) of the
Act,\408\ that the proposed rule change (SR-NYSE-2004-05) and Amendment
Nos. 1, 2, 3, and 5 are approved, and that Amendment Nos. 6, 7, and 8
thereto are approved on an accelerated basis.
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    \408\ 15 U.S.C. 78s(b)(2).

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. 06-3012 Filed 3-30-06; 8:45 am]

BILLING CODE 8010-01-P