[Federal Register: October 12, 2006 (Volume 71, Number 197)]
[Notices]
[Page 60208-60216]
[DOCID:fr12oc06-98]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54577; File No. SR-NYSE-2006-36]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Approving Proposed Rule Change and Amendment Nos. 1 and 2 Thereto To
Provide Floor Brokers With the Ability To Enter Discretionary
Instructions and/or Pegging Instructions With Respect to Floor Broker
Agency Interest Files (e-Quotes)

October 5, 2006.

I. Introduction

    On May 16, 2006, the New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to provide floor brokers with the ability to enter
discretionary and pegging instructions with respect to their floor
broker agency interest files. On June 14, 2006 and July 11, 2006, NYSE
filed Amendment Nos. 1 \3\ and 2 \4\ to the proposed rule change,
respectively. The proposed rule change, as amended, was published for
comment in the Federal Register on July 21, 2006.\5\ The Commission
received six comment letters from three commenters.\6\ On September 13,
2006, the Exchange filed a response to the comment letters.\7\ This
order approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, NYSE proposed additional changes and
clarifications to the proposal.
    \4\ Amendment No. 2 supersedes and replaces the original rule
change and Amendment No. 1 in their entirety.
    \5\ See Securities and Exchange Act Release No. 54150 (July 14,
2006), 71 FR 41496.
    \6\ See Letters from George Rutherfurd, Consultant, dated June
22, 2006 (``Rutherfurd I''), August 3, 2006 (``Rutherfurd II'') and
September 21, 2006 (``Rutherfurd Letter III''); Warren Meyers,
President, Independent Brokers Action Committee, dated August 11,
2006 (``IBAC Letter''); and Junius W. Peake, Monfort Distinguished
Emeritus Professor of Finance, Kenneth W. Monfort College of
Business, dated August 18, 2006 (``Peake Letter I'') and October 3,
2006 (``Peake Letter II'').
    \7\ See Letter from Mary Yeager, Secretary, NYSE, to Nancy
Morris, Secretary, Commission, dated September 13, 2006 (``Response
to Comments'').
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II. Background

    On March 22, 2006, the Commission approved NYSE's proposal to
establish a Hybrid Market, which will alter the Exchange's market
structure from a floor-based auction market with limited automated
order interaction to a more automated market with limited floor-based
auction market availability.\8\ To create its Hybrid Market, NYSE
changed its rules to permit its floor members to participate in the
market electronically. For example, specialists will have the ability
to manually and systematically place in a separate file (``specialist
interest file'') within the Display Book system \9\ their proprietary
interest at prices at or outside the Exchange best bid or offer
(``BBO''). In addition, specialists will establish algorithms
(``Specialist Algorithm'') \10\ to send messages via an Exchange-owned
application program interface to quote and trade for their proprietary
accounts.\11\
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    \8\ See Securities and Exchange Act Release No. 53539, 71 FR
16353 (March 31, 2006) (``Hybrid Market Order'').
    \9\ The Display Book system (``Display Book system'') is an
order management and execution facility. The Display Book system
receives and displays orders to the specialists, contains the
customer limit order display book (``Book''), and provides a
mechanism to execute and report transactions and publish the results
to the Consolidated Tape. In addition, the Display Book system is
connected to a variety of Exchange systems for the purposes of
comparison, surveillance, and reporting information to customers and
other market data and national market systems, i.e., the Intermarket
Trading System, the Consolidated Tape Association, Consolidated
Quotation System, etc.
    \10\ See NYSE Rule 104(b).
    \11\ See NYSE Rule 104(e).
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    As approved in the Hybrid Market Order, floor brokers will
represent their customers' orders electronically in a separate file in
the Display Book system (``floor broker agency interest file'') at
multiple prices at or outside the Exchange BBO (``e-Quotes''). As
approved, e-Quotes can participate in automatic executions at the
Exchange BBO or outside the Exchange BBO during a sweep. E-Quotes may
not, however, initiate trades with incoming orders at prices better
than the Exchange BBO. Accordingly, the Exchange now proposes
additional changes that it believes will further replicate
electronically the manner in which floor brokers represent their
customers' orders on the floor. Specifically, NYSE proposes to provide
floor brokers with the ability to enter discretionary instructions as
to the size and/or price at which their e-Quotes may trade (``d-
Quotes'').\12\ In addition, the Exchange proposes to provide floor
brokers with the ability to set their e-Quotes and d-Quotes to peg to
the Exchange BBO so that their e-Quotes or d-Quotes would be available
for execution at the BBO as the Exchange BBO changes (``pegging'').
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    \12\ NYSE also refers to d-Quotes as ``discretionary e-Quotes''
in its proposed rule text.

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III. Description of the Proposal

A. Proposed Discretionary Instructions for e-Quotes

    The Exchange proposes NYSE Rule 70.25 to permit floor brokers to
enter discretionary instructions with respect to the size and/or price
at which the e-Quote would trade through the d-Quote functionality.\13\
Unlike e-Quotes, d-Quotes would provide floor brokers with the means to
express a price range within which they are willing to actively trade
at prices at or better than the BBO. The discretionary instructions
would relate to the price at which the d-Quote could trade and the
number of shares to which the discretionary price instructions would
apply.\14\
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    \13\ See proposed NYSE Rule 70.25(a)(i).
    \14\ See proposed NYSE Rule 70.25(a)(i).
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    The discretionary instructions would only be active when the e-
Quote is at or joins the existing Exchange BBO or would establish a new
Exchange BBO.\15\ Furthermore, discretionary instructions would be
active for automatic executions only, and not active with respect to
the opening or closing transactions on the Exchange.\16\ NYSE would
also apply the discretionary instructions of a d-Quote only if all the
d-Quoting prerequisites are met; otherwise, the d-Quote would be
handled as a regular e-Quote (notwithstanding the fact that the floor
broker has designated the e-Quote as a d-Quote).\17\ For instance, to
qualify as a d-Quote, the e-Quote would be required to have a
discretionary price range.\18\ Furthermore, the floor brokers must
comply with the requirements for e-Quotes, as approved in the Hybrid
Market, with regard to d-Quotes, including the requirement that floor
brokers be present in the Crowd when they have placed interest in their
floor broker agency interest files.\19\
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    \15\ See proposed NYSE Rule 70.25(a)(ii).
    \16\ See proposed NYSE Rule 70.25(a)(iii).
    \17\ See proposed NYSE Rule 70.25(a)(iv). For example, if the d-
Quote is not at the Exchange BBO, it would not exercise its
discretionary instructions and accordingly, would function like an
e-Quote instead.
    \18\ See proposed NYSE Rule 70.25(a)(iv).
    \19\ See proposed NYSE Rule 70.25(a)(v).
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    Floor brokers would be permitted to have multiple d-Quotes, with
different price and size instructions, on the same side of the market.
Such multiple d-Quotes would not compete with each other for execution
priority; rather, the trading volume would be allocated by floor
broker, not the number of d-Quotes participating in an execution.\20\
Discretionary instructions would apply to both displayed and/or reserve
interest.\21\ The specialist on the floor and the Specialist Algorithm
would not have access to the discretionary instructions entered by
floor brokers with respect to their e-Quotes.\22\
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    \20\ See proposed NYSE Rule 70.25(a)(vi).
    \21\ See proposed NYSE Rule 70.25(a)(vii).
    \22\ See proposed NYSE Rule 70.25(a)(viii).
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1. Discretionary Price Instructions
    NYSE proposes to provide floor brokers with the ability to set a
discretionary price range within the Exchange BBO to designate the
prices at which their customers are willing to trade.\23\ The floor
brokers' e-Quote must be represented in the Exchange BBO for
discretionary pricing to be utilized. The price discretion set by the
floor broker would be used to initiate or participate in a trade with
an incoming order that is capable of trading at a price within the
Exchange BBO and the discretionary price range.\24\
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    \23\ See proposed NYSE Rule 70.25(b)(i).
    \24\ See proposed NYSE Rule 70.25(b)(i). The minimum price range
for a d-Quote would be the minimum price variation set forth in NYSE
Rule 62, currently $0.01 for equity securities and $0.10 for equity
securities trading at a price of $100,000 or greater. See proposed
NYSE Rule 70.25(b)(ii) and NYSE Rules 62.10 and 62.20.
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    Floor brokers may also specify whether their discretionary price
instructions would apply to all or only a portion of their d-Quotes. If
price discretion is provided for only a portion of a d-Quote, the
residual would be treated as an e-Quote.\25\ Finally, when price
discretion is used, NYSE proposes that the shares executed from the d-
Quote be decremented from reserve size first, if any, and then from its
displayed size.\26\
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    \25\ See proposed NYSE Rule 70.25(b)(iii).
    \26\ See proposed NYSE Rule 70.25(b)(iv).
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2. Discretionary Size Instructions
    In addition to discretionary price instructions, a floor broker may
enter discretionary size instructions. Discretionary size instructions
designate the portion of the e-Quote to which the discretionary price
instructions would apply.\27\ Floor broker may also specify a minimum
and/or maximum size of contra side volume with which it would be
willing to trade using price discretion.\28\
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    \27\ See proposed NYSE Rule 70.25(c)(i).
    \28\ See proposed NYSE Rule 70.25(c)(ii). According to the
Exchange, this should allow for more specific order management by
preventing the d-Quote from trading with opposite side interest that
the floor broker has judged to be too little or too great in the
context of the order or orders it is managing.
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    NYSE proposes that its systems would only consider NYSE displayed
interest to determine whether the size of the contra side volume is
within the d-Quote's discretionary size range. Contra side reserve and
other interest at the possible execution price would not be
considered.\29\ Interest displayed by other market centers at the price
at which a d-Quote could trade would not be considered by Exchange
systems when determining if the d-Quote's minimum and/or maximum size
range is met, unless the Floor broker electronically designates that
such away volume should be included in this determination.\30\ Once the
total amount of a floor broker's discretionary volume has been
executed, the d-Quote's discretionary price instructions would become
inactive, and the remainder of such d-Quote would be treated as an e-
Quote.\31\
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    \29\ See proposed NYSE Rule 70.25(c)(iii). However, an increase
or reduction in the size associated with a particular price that
brings the contra side volume within a d-Quote's minimum/maximum
discretionary size parameter would trigger an execution of that d-
Quote. See proposed NYSE Rule 70.25(c)(v).
    \30\ See proposed NYSE Rule 70.25(c)(iv).
    \31\ See proposed NYSE Rule 70.25(c)(vi).
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3. Executions of d-Quotes
    NYSE stated that the goal of discretionary e-Quoting is to secure
the largest execution for the d-Quote, using the least amount of price
discretion. Accordingly, d-Quotes may improve the execution price of
incoming orders. However, if no discretion is necessary to accomplish a
trade, none would be used.\32\ In addition, future executions that
could occur, such as those resulting from the execution of elected
contra side CAP-DI orders, would not be considered in determining when,
and to what extent, price discretion would be necessary to accomplish a
trade.\33\
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    \32\ See proposed NYSE Rule 70.25(d)(i).
    \33\ See proposed NYSE Rule 70.25(d)(i)(A).
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    Pursuant to the proposed rules, d-Quotes would automatically
execute against a contra side order that enters the Display Book
system, if the order's price is within the discretionary price range,
and the order's size meets any minimum or maximum size requirements
that have been set for the d-Quote.\34\ If there are multiple d-Quotes
from different floor brokers on the same side of the market with the
same discretionary price instructions, then such d-Quotes would trade
on parity, after interest entitled to priority is executed.\35\
Multiple d-Quotes from different floor brokers on the same side of the
market also would compete for an execution, with the most aggressive
price range establishing the execution price. If an incoming order
remains unfilled at that price, executions within the less aggressive
price range would

then occur.\36\ In addition, d-Quotes would compete with same-side
specialist algorithmic trading messages that seek to trade with
incoming orders.\37\ If the price of d-Quotes and specialist trading
messages are the same, d-Quotes and the specialist messages would trade
on parity.\38\
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    \34\ See proposed NYSE Rule 70.25(d)(ii).
    \35\ See proposed NYSE Rule 70.25(d)(iii).
    \36\ See proposed NYSE Rule 70.25(d)(iv).
    \37\ See NYSE Rule 104(b). Specialists are limited in the
instances in which they may trade with incoming orders.
    \38\ See proposed NYSE Rules 70.25(d)(v) and 104(c)(ix).
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    D-Quotes from floor brokers on the opposite sides of the market
could trade with each other. In these circumstances, the d-Quote that
arrived at the Display Book system last would use the most discretion
necessary to effect a trade.\39\ All executions involving d-Quotes must
comply with Rule 611 under Regulation NMS (``Reg. NMS'').\40\
Accordingly, when a protected bid or offer, as defined in Reg. NMS,\41\
is published by another market center at a price that is better than
the price at which contra side d-Quotes could trade, the amount of
discretion necessary to permit a trade on the Exchange that is
consistent with Rule 611 would be used, or such portion of the d-Quote
as is necessary would be automatically routed in accordance with Rule
611 in order to permit a trade to occur on the Exchange.\42\
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    \39\ See proposed NYSE Rule 70.25(d)(vi).
    \40\ See Rule 611 of Reg. NMS, 17 CFR 242.611 and proposed NYSE
Rule 70.25(d)(vii).
    \41\ See Rule 600(b)(57) of Reg. NMS, 17 CFR 242.600(b)(57).
    \42\ See proposed NYSE Rule 70.25(d)(vi)(A).
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    D-Quotes also could provide price improvement to, and trade with,
an incoming contra side specialist algorithmic trading message to ``hit
bid/take offer,'' just as they could with any other marketable incoming
interest.\43\ D-Quotes may initiate sweeps in accordance with and to
the extent provided by NYSE Rules 1000-1004, but only to the extent of
their price and volume discretion. They also could participate in
sweeps initiated by other orders, but, in such cases, their
discretionary instructions would not be active.\44\ Finally, d-Quotes
would not trade at a price that would trigger a liquidity replenishment
point (``LRP''), as defined in NYSE Rule 1000.\45\ Accordingly, a sweep
involving a d-Quote would always stop at least one cent before an LRP
is reached.\46\
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    \43\ See proposed NYSE Rule 70.25(d)(viii).
    \44\ See proposed NYSE Rule 70.25(d)(ix).
    \45\ LRPs are pre-determined price points that would halt
automatic executions for varying periods depending on the price and
remaining size, if any, of an automatic execution order. See NYSE
Rule 1000. The Commission notes that NYSE has proposed to amend its
LRPs. See Securities Exchange Act Release No. 54520 (September 27,
2006), 71 FR 57590 (September 29, 2006).
    \46\ See proposed NYSE Rule 70.25(d)(ix)(A).
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B. Pegging

    NYSE proposes to allow its floor brokers to enter instructions with
regard to their e-Quotes so that they would ``peg'' the Exchange BBO. A
pegging instruction may be added as a separate type of discretionary
instruction and may be active along with discretionary price
instructions. Specifically, under the proposed rules, a floor broker
could set an e-Quote, other than a tick-sensitive e-Quote, to be
available for execution at the Exchange best bid (for an e-Quote that
represents a buy order) or at the Exchange best offer (for an e-Quote
that represents a sell order) as the Exchange BBO changes, so long as
the Exchange BBO is at or within the e-Quote's limit price.\47\ A floor
broker could similarly employ pegging for its d-Quotes.\48\
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    \47\ See proposed NYSE Rule 70.26(i).
    \48\ See proposed NYSE Rule 70.26(ii).
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    The Exchange proposes that pegging be active only when auto-quoting
is active.\49\ Pegging interest would trade on parity with other
interest at the BBO after the interest entitled to priority has been
executed. Pegging is reactive. Accordingly, a pegging e-Quote or d-
Quote would not establish the Exchange BBO as result of pegging,\50\
and therefore could not establish price priority by pegging. The
existence of pegging instructions, however, would not preclude an e-
Quote or d-Quote from having priority.\51\
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    \49\ See proposed NYSE Rule 70.26(iii). The Exchange represented
that this means when the Autoquote System is active. Telephone
conversation between Nancy Reich, Vice President, Office of the
General Counsel, NYSE, and Kelly Riley, Assistant Director, Division
of Market Regulation, Commission, on October 4, 2006.
    \50\ See proposed NYSE Rule 70.26(v).
    \51\ See proposed NYSE Rule 70.26(vi).
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    E-Quotes and d-Quotes with pegging instructions will only peg other
non-pegging interest.\52\ Further, an e-Quote or d-Quote would not be
able to sustain the Exchange BBO as a result of pegging, if there is no
other non-pegged interest at that price, and such price is not the e-
Quote's or d-Quote's limit price.\53\ Specifically, if the lowest
quotable price established by the floor broker for a pegging e-Quote or
d-Quote to buy is the Exchange best bid, and all other interest at that
price cancels or is executed, the pegging e-Quote or d-Quote would
remain displayed at that best bid price.\54\ Similarly, if the highest
quotable price established by the floor broker for a pegging e-Quote or
d-Quote to sell is the Exchange best offer and all other interest at
that price cancels or is executed, the pegging e-Quote or d-Quote would
remain displayed at that best offer price.\55\
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    \52\ See proposed NYSE Rule 70.26(vii).
    \53\ See proposed NYSE Rule 70.26(viii).
    \54\ See proposed NYSE Rule 70.26(viii)(A).
    \55\ See proposed NYSE Rule 70.26(viii)(B).
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    Floor brokers may establish price ranges for an e-Quote or d-Quote,
beyond which the pegging function would not be available. Specifically,
the floor broker can set a ``quote price,'' which would be the lowest
price to which a buy e-Quote or d-Quote could peg or the highest price
to which a sell e-Quote or d-Quote could peg.\56\ The floor broker may
also set a ``ceiling price,'' which is the highest price to which a buy
side e-Quote or d-Quote could peg \57\ and a ``floor price,'' which is
the lowest price to which a sell side e-Quote or d-Quote could peg.\58\
The quote, ceiling, and floor price may be at a price other than the
limit price of the order being e-Quoted or d-Quoted, but may not be
inconsistent with the order's limit.\59\
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    \56\ See proposed NYSE Rule 70.26(ix)(A).
    \57\ See proposed NYSE Rule 70.26(ix)(B).
    \58\ See proposed NYSE Rule 70.26(ix)(C).
    \59\ See proposed NYSE Rule 70.26(ix)(D).
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    Under the proposed rules, as long as the Exchange best bid (offer)
is at or within the pegging price range selected by the floor broker
with respect to a buy-side (sell-side) e-Quote or d-Quote, the pegging
e-Quote or d-Quote would join such best bid (offer) as it is auto
quoted.\60\ If the floor broker does not designate a pegging range, but
has instructed that its e-Quote or d-Quote should peg, the e-Quote or
d-Quote would peg to the Exchange best bid (offer) as long as such bid
(offer) is within the limit of the order that is being e-Quoted or d-
Quoted.\61\
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    \60\ See proposed NYSE Rule 70.26(x). See also note 49, supra.
    \61\ See proposed NYSE Rule 70.26(xi).
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    Furthermore, as an e-Quote or d-Quote pegs, its discretionary price
range, if any, would move along with it, subject to any floor or
ceiling price set by the floor broker.\62\ In addition, if the Exchange
best bid is higher than the ceiling price of a pegging buy-side e-Quote
or d-Quote, the e-Quote or d-Quote would remain at its quote price or
the highest price at which there is other interest within its pegging
price range, whichever is higher (consistent with the limit price of
the order underlying the e-Quote or d-Quote).\63\ Similarly, if the
Exchange best offer is lower than the floor price of a pegging sell-
side e-Quote or d-Quote, the e-Quote or d-Quote would remain at its

quote price or the lowest price at which there is other interest within
its pegging price range, whichever is lower (consistent with the limit
price of the order underlying the e-Quote or d-Quote).\64\ However, if
the Exchange BBO returns to a price within the pegging price range
selected by the floor broker, the e-Quote or d-Quote would once again
peg to the Exchange BBO.\65\
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    \62\ See proposed NYSE Rule 70.26(xii).
    \63\ See proposed NYSE Rule 70.26(xii)(A).
    \64\ See proposed NYSE Rule 70.26(xii)(B).
    \65\ See proposed NYSE Rule 70.26(xii)(C).
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    Finally, a floor broker may specify the minimum and/or maximum size
of same side volume to which its e-Quote or d-Quote would peg.\66\
Other pegging e-Quote or d-Quote volume would not be considered in
determining whether the volume parameters set by the floor broker have
been met.\67\
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    \66\ See proposed NYSE Rule 70.26(xiii).
    \67\ See proposed NYSE Rule 70.26(xiii).
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C. Other Proposed Changes

1. NYSE Rule 70.20
    The Exchange also proposes to amend NYSE Rule 70.20(j)(i) to
specify that e-Quotes could participate in the closing trade, in
accordance with the policies and procedures of the Exchange and NYSE
Rule 70.20(k) to specify that during the close, a floor broker's
reserve interest, if any, would be added to the size of its e-Quoted
interest.
2. NYSE Rule 123(e)
    The Exchange proposes to add certain required terms regarding e-
Quotes, d-Quotes, and pegging instructions as part of its Rule 123,
which requires the entry of certain order information into the
Exchange's Front End Systemic Capture System before such order can be
represented.
3. NYSE Rule 1000(d)
    The Exchange proposes to amend NYSE Rule 1000(d)(iii)(A) to specify
that d-Quotes will participate in sweeps in the manner specified in
proposed NYSE Rule 70.25(d)(ix).

D. Implementation

    As explained in the Response to Comments, NYSE proposes to
implement the proposal in Phases 3 and 4 of the Hybrid Market in two
parts.\68\ The first part, which would be implemented as part of Phase
3 of the Hybrid Market, would provide the pegging and d-Quote
functionality with respect to the ability to trade with marketable
orders. The second part, which would provide the d-Quote functionality
with opposite-side interest anywhere in its discretionary range, is
scheduled for implementation in Phase 4 of the Hybrid Market. Phase 3
is currently scheduled to commence on or about October 6, 2006 and is
expected to be completed in early-December 2006. Phase 4 is expected to
begin in December 2006, immediately following the completion of Phase
3.
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    \68\ See Response to Comments.
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IV. Summary of Comments

    The Commission received a total of six comment letters from three
commenters on the proposed rule change \69\ and NYSE filed the Response
to Comments.\70\ One commenter generally supported NYSE's proposal.\71\
The other two commenters did not support the proposal and raised
specific concerns about the proposal.
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    \69\ See supra note 6.
    \70\ See supra note 7.
    \71\ See IBAC Letter.
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    One commenter argued that the proposal raises significant market
structure issues because he believes that it will allow hidden orders
to compete directly with transparent market interest.\72\ This
commenter argues that the proposal would allow hidden order
trading,\73\ which makes the markets less transparent to those who seek
liquidity and denies executions to those who post liquidity. Further,
the commenter argued that hidden order trading would render meaningless
the notion of published quotes or the national best bid/offer
(``NBBO'') because of the existence of hidden immediately executable
market interest available between the published quote. The commenter
believes that these results are inconsistent with the principles of
Section 11A of the Act \74\ and the Commission's Reg. NMS in that they
compromise the notion that a fully transparent market is the fairest
for all investors.\75\ This commenter also argued that the d-Quote
proposal would hinder the price discovery process. By hiding interest
willing to trade at a specified price, investors will not be able to
make fully informed pricing decisions for their orders.
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    \72\ See Rutherfurd Letter I.
    \73\ The commenter disagrees with the NYSE's classification of
d-Quotes as discretionary order instructions. The commenter argues
that d-Quotes are actually conditional limit orders that will be
automatically and immediately executed upon the satisfaction of the
specified terms entered by the floor broker. See also Peake Letters
I and II.
    \74\ 15 U.S.C. 78k-1.
    \75\ This commenter urges the Commission to issue a concept
release on hidden order trading to consider the implications on
market transparency, published quotations, public limit order
protection, and price discovery processes. See Rutherfurd Letter I.
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    The commenter disagreed with NYSE's representation that the
proposal replicated the manner in which floor brokers act on behalf of
their customers in the physical auction market.\76\ The commenter
acknowledged that floor brokers have always provided in-between-the-
published-quote executions on the floor but that in the physical
auction, the decision of the floor broker to participate in an
execution is made on a trade-by-trade basis after contra side orders
arrive in the crowd. The commenter argued that in the auction
``everything is transparent.'' \77\ While floor brokers may hold
discretionary orders that are not known to the public, these orders are
not active until the floor broker makes a public bid (offer) that is
known to all in the trading crowd. After a floor broker makes its bid
(offer) public in the crowd, other brokers or the specialist can
compete by bidding higher (offering lower). Thus, the commenter argued,
``everything is transparent, as the previously `hidden' discretionary
order must be disclosed prior to the trade, and even after it is
disclosed, is not guaranteed an opportunity to trade if competing
market participants then bid higher (offer lower).'' \78\
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    \76\ See Rutherfurd Letters I and III.
    \77\ See Rutherfurd Letter III.
    \78\ Id.
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    According to the commenter, the d-Quote, however, would allow floor
brokers to enter into an automated system better prices that are always
available for immediate execution and because they are not disclosed,
other market participants are not able to compete with them to provide
an even better priced execution. The commenter argues that the proposal
gives floor brokers a time/place advantage because they can react to
what is placed in the Book. The commenter believes that this time/place
advantage is more troubling than what floor members on the Exchange
currently possess because it is not mitigated by transparency at the
point of sale like it is in the current auction market.\79\ Finally,
the commenter noted investors do not enjoy the same informational
benefit of knowing the prices at which floor brokers' customers are
willing to trade. If they did, the commenter argued, they would be able
to make the decision of how to price their own orders and thus, would
be able to compete with the floor brokers' customers.
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    \79\ See Rutherfurd Letters I and III.
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    The commenter also argues that the proposal was inconsistent with
Sections 6(b)(5) \80\ and 11A \81\ of the Act.\82\ The commenter argues
that by giving floor brokers the exclusive ability to enter

discretionary instructions, the NYSE proposal is inconsistent with
Section 6(b)(5) of the Act, which states that an exchange's rules
cannot be designed to ``permit unfair discrimination between customers,
issuers, brokers or dealers * * *'' \83\ In addition, the commenter
argues that by requiring members to use floor brokers to enter
discretionary instructions, the proposal is inconsistent with Section
11A(a)(1)(C)(i) of the Act,\84\ which reflects Congress' belief that it
is in the public interest and appropriate for the protection of
investors and the maintenance of a fair and orderly market to assure
the ``economically efficient execution of securities transactions.''
This commenter argued that NYSE's proposal is a ``direct impediment to
economically efficient execution of securities transactions'' because
upstairs members can, and should be permitted to, exercise their own
judgment and put discretionary instructions on their own orders without
having to incur the significant additional expense of using a floor
broker. This commenter believes that floor brokers will merely perform
a clerical function of inputting an order with specific conditions and
that the NYSE systems will thereafter represent and execute the order.
---------------------------------------------------------------------------

    \80\ 15 U.S.C. 78f(b)(5).
    \81\ 15 U.S.C. 78k-1.
    \82\ See Rutherfurd Letters I, II and III.
    \83\ The commenter also argues that the proposal is
anticompetitive because it benefits one class of market participants
(floor brokers) at the expense of other market participants. See
Rutherfurd Letter III. See also Peake Letter II. Another commenter
argues that all market participants should have access to the
``national market system.'' See Peake Letter I.
    \84\ 15 U.S.C. 78k-1(a)(1)(C)(i).
---------------------------------------------------------------------------

    The commenter disagreed with NYSE's representation that the
proposal would give floor brokers a means to compete with specialists'
algorithmic trading and quoting. The commenter believes that specialist
algorithmic trading on parity with interest represented by floor
brokers is inconsistent with Section 11A of the Act \85\ and argues the
floor broker d-Quotes do not rectify this problem with specialist
trading in the Hybrid Market. Specifically, the commenter cites Section
11A(a)(1)(C)(v) of the Act,\86\ which reflects Congress' belief that
investors' orders should have the opportunity to be executed without
the participation of a dealer.\87\
---------------------------------------------------------------------------

    \85\ 15 U.S.C. 78k-1.
    \86\ 15 U.S.C. 78k-1(a)(1)(C)(v).
    \87\ See Rutherfurd Letter I. See also Peake Letter II. The
commenter also argues that specialists trading on parity with
investors' orders represented by floor brokers is inconsistent with
the specialists' negative obligation. See Rutherfurd Letter I.
---------------------------------------------------------------------------

    Another commenter argued that floor brokers should continue to be
allowed to object to specialists' trading on parity when opening or
increasing a position, in order to closely replicate the present
auction market.\88\ Finally, this commenter urged that d-Quotes and
specialist algorithms be phased-in together.
---------------------------------------------------------------------------

    \88\ See IBAC Letter. See also Rutherfurd Letter III (stating
that if the specialist is permitted to trade on parity, the
Commission should demand that NYSE allow a floor broker objection
mechanism in the Hybrid Market so that floor brokers could protect
the public).
---------------------------------------------------------------------------

NYSE's Response

    NYSE believes that its proposal does replicate the manner in which
floor brokers represent customer orders in the current auction market.
Specifically, NYSE believes that d-Quotes are necessary to ensure that
floor brokers are able to perform a function similar to that which they
perform today as the markets become faster and more automated. NYSE
believes that the proposal should allow floor brokers to electronically
replicate the order management decisions they make regarding the
representation of customer orders. According to NYSE, investors that
use floor brokers would not be able to access the market in the manner
they do today. NYSE argues that the proposed discretionary instructions
and pegging ability will allow floor brokers to use their judgment and
expertise in managing their customers' orders in a faster, automated
market.
    In response to the comment that d-Quotes would negatively impact
price discovery and provide informational advantages to floor brokers,
NYSE noted that d-Quote function is similar to proposals by other
markets that permit non-displayed orders that trade between the
quote.\89\ Furthermore, NYSE believes that d-Quotes would replicate
that which occurs in the manual auction market and would not provide
more or less information than is currently available in the Exchange's
market. According to NYSE, the d-Quote is ``as transparent as any other
floor broker-represented order that is not fully displayed in
accordance with long established trading practices, SEC rules and
regulations and NYSE rules and regulations.'' Because the Hybrid Market
would continue to involve the interaction of floor brokers representing
their customer's orders, limit orders on the Display Book system, and
the specialist's dealer interest, NYSE believes that the price
discovery mechanism would continue to exist. NYSE argues that d-Quotes
would ``merely enhance the ability of floor brokers to effectively
represent their customers' orders in the automated portion of the
Hybrid Market'' and they do not replace order interaction or the price
discovery process.\90\
---------------------------------------------------------------------------

    \89\ NYSE believes that these types of orders were approved in
response to market participants' preference for order and customer
anonymity, despite the typical argument that such anonymity could be
detrimental to other market participants. See Response to Comments.
But see Rutherfurd Letter III (arguing that NYSE is not replicating
hidden order (reserve) trading that is conducted in other markets).
    \90\ But see Rutherfurd Letter III. Disagreeing with NYSE's
response, this commenter argued that floor broker and specialist
interest could not promote price discovery when such interest is
entirely hidden.
---------------------------------------------------------------------------

    In response the commenter's suggestion that d-Quotes would create
price uncertainty, NYSE also believes that d-Quotes would provide
investors with a better opportunity for price improvement and would
moderate volatility by providing liquidity and better price
continuity.\91\ NYSE believes that d-Quotes would attract liquidity
from incoming orders seeking the opportunity for a better priced and/or
larger sized transaction that could result from an increase in
competition between specialists and other floor brokers' d-Quotes.\92\
---------------------------------------------------------------------------

    \91\ See Response to Comments. But see Rutherfurd Letter III.
This commenter objected to NYSE's position that d-Quotes would
provide increased opportunities for price improvement, arguing
instead that the e/d-Quote ``overhangs'' the market and is pre-
programmed to trade automatically. The commenter claims, therefore,
that the e/d-Quote is, in actuality, the ``real'', non-discretionary
NYSE market that is willing to trade at such hidden price. Rather
than receiving price improvement, the incoming order is merely
receiving an execution at the real, pre-existing NYSE price.
    \92\ But see Rutherfurd Letter III (arguing that e/d-Quotes
could not attract liquidity or enhance competition when they are
hidden).
---------------------------------------------------------------------------

    With respect to the concern that d-Quotes would create an ``unlevel
informational playing field,'' NYSE noted while investors that use
floor brokers would gain the benefits of d-Quotes, the d-Quotes do not
create an unequal or unfair advantage for any market participant. NYSE
pointed out that specialists and their algorithms would not know about
any discretionary instructions, and floor brokers would have access
only to information about their own agency interest, not to other
broker's files.\93\ NYSE refuted one commenter's suggestion that limit
orders on the Book would have access to less information as a result of
d-Quotes by representing that investors entering limit orders would be
privy to the same information as is currently available to them, which,
NYSE points out, does not presently include knowledge of a floor
broker's decisions

regarding order management, until after such decisions are affected.
---------------------------------------------------------------------------

    \93\ NYSE also indicated that neither the specialist on the
floor nor the specialist algorithmic trading system would have
access to any of the discretionary instructions entered by the floor
broker in connection with the d-Quotes. See Response to Comments.
---------------------------------------------------------------------------

    With respect to the commenters' implication that d-Quotes would
disadvantage limit orders on the Book by denying executions to those
who post liquidity, NYSE responded that the principles of priority and
parity at the NYSE BBO would not be changed with the introduction of
the d-Quote.\94\ Accordingly, a limit order with priority at the BBO on
the same side of the d-Quote would trade first in any execution at the
quote. Furthermore, NYSE stated that d-Quotes would not force nor cause
limit orders to accept different or worse prices than what their limits
dictate. NYSE explained that because discretionary pricing would allow
d-Quotes to trade at prices in between the quote where there are no
public limit orders, d-Quotes would provide price improvement to an
incoming order capable of trading at such better price and would not
negatively impact the limit order displayed at a worse price. If the
commenter was implying that the person entering the limit order would
have entered his or her limit order at the better price had he or she
known there were other market participants interested in trading at
such price, NYSE responded that nothing prevented the limit order from
being entered at such better price at the outset.\95\ Furthermore, NYSE
believes that nothing in the securities laws or Exchange rules require
that every market participant fully disclose their interest at the best
price possible; instead, customers are permitted to choose from a
variety of options, including the order management provided by floor
brokers.
---------------------------------------------------------------------------

    \94\ See Response to Comments.
    \95\ But see Rutherfurd Letter III (arguing that participants
entering public limit orders could only react to publicly available
information).
---------------------------------------------------------------------------

    In response to commenters' suggestion that floor brokers should
retain the right to exclude specialists from trading on parity when
increasing a position with respect to automatic executions, NYSE noted
that this provision was approved in the Hybrid Market Order. To the
extent that floor brokers wish to prevent specialists from trading on
parity with their orders in the Hybrid Market, NYSE stated that floor
brokers could send those orders for execution through SuperDot.\96\ In
response to a commenter's objection to NYSE's proposal to deactivate
the discretionary instructions of a d-Quote during a sweep that is
initiated by other orders,\97\ NYSE stated that this amendment
recognizes that when a d-Quote is participating in a sweep, as opposed
to initiating a sweep, employing the discretionary pricing instructions
of the d-Quote would not provide additional value to the customer being
d-Quoted.\98\
    With regard to the comments on the Exchange's proposed
implementation schedule,\99\ NYSE acknowledged that, given the
complexity of the software developed for the d-Quote functionality and
the extensive system changes required to enable increased automatic
execution capabilities, it has not been able to launch all of these
initiatives at the same time.\100\ NYSE explained that floor brokers
had requested the d-Quoting functionality well after the design of e-
Quoting was completed and the necessary programming changes were
scheduled. As a result, d-Quoting was initially slated for
implementation as part of the last phase of the Hybrid Market. However,
in response to requests from floor brokers, NYSE claimed that it has
made every effort to move d-Quote implementation forward as much as
possible. In addition, NYSE stated that it would be adding to the
upcoming software releases a number of other changes recently requested
by floor brokers, designed to improve the efficiency of the devices
they use to access the market. Furthermore, NYSE maintained that the
rollout of d-Quotes is timed to a program that provides ample training
and trading practice for floor brokers using the new functionality.
Accordingly, NYSE believes that the sheer volume of system and other
required software changes, coupled with the need for appropriate
training, mandates that the Exchange implement d-Quoting in two
parts.\101\ Finally, NYSE believes that the phase-in process would be
sensitive to the varied needs of all market participants affected by
the introduction of these complex changes, and that thorough and proper
broker training and preparation for the d-Quote is essential, as it
protects the broker from making unintended trading errors.
---------------------------------------------------------------------------

    \96\ NYSE believes this solution was supported by floor brokers
who worked with the Exchange in designing the e-Quote. See Response
to Comments. But see Rutherfurd Letter III (arguing that NYSE's
response is not providing a feasible means for a floor broker to
protect its public customer from unnecessary specialist competition
since, as a practical matter, floor brokers would not be able to
participate in the Hybrid Market if they were to send their orders
through SuperDot).
    \97\ See IBAC Letter.
    \98\ See Response to Comments.
    \99\ See IBAC Letter.
    \100\ See Response to Comments.
    \101\ See Section III., D. for a complete discussion of the two-
part implementation.
---------------------------------------------------------------------------

V. Discussion

    After careful review and consideration of the comments, the
Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange
and, in particular, with the requirements of Section 6(b) of the
Act.\102\ Specifically, the Commission finds that approval of the
proposed rule change, as amended, is consistent with Section 6(b)(5) of
the Act \103\ in that the proposal is designed to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and 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. Further, the Commission
believes that the proposed rule change, as amended, is consistent with
Section 11A(a)(1)(C) of the Act,\104\ in which Congress found that it
is in the public interest and appropriate for the protection of
investors and the maintenance of fair and orderly markets to assure:
(1) Economically efficient execution of securities transactions; (2)
fair competition among brokers and dealers and among exchange markets,
and between exchange markets, and markets other than exchange markets;
(3) the availability to brokers, dealers, and investors of information
with respect to quotations and transactions in securities; (4) the
practicability of brokers executing investors' orders in the best
markets; and (5) an opportunity for investors' orders to be executed
without the participation of a dealer.
---------------------------------------------------------------------------

    \102\ 15 U.S.C. 78f(b). In approving this proposal, the
Commission has considered the proposed rules' impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
    \103\ 15 U.S.C. 78f(b)(5).
    \104\ 15 U.S.C. 78k-1(a)(1)(C).
---------------------------------------------------------------------------

    Currently in the NYSE auction, floor brokers represent their
customers' orders for execution. For many orders, floor brokers have
discretion to determine the price at which their customers' orders
should be executed, subject to their agency obligations and best
execution requirements. As the NYSE market becomes more automated, NYSE
and its floor brokers have considered how floor brokers can continue to
represent their customers in a meaningful fashion. NYSE continues to
believe that its physical auction on the floor will play an important
role in

its market even as automated execution expands.
    In the Hybrid Market, as approved, NYSE made provisions to allow
its floor brokers to represent their customers in the electronic
portion of the market. NYSE, however, also placed restrictions on their
activities to reflect the continued role of the auction on the floor.
Specifically, NYSE requires its floor brokers to be in the ``Crowd''
when representing customers electronically so that they can be
available to represent their customers should the market move to the
floor.
    With this current proposal, NYSE proposes to give floor brokers
more tools with which to represent their customers. NYSE represents
that the discretionary instructions that it has proposed are intended
to replicate the manner in which floor brokers represent orders in the
auction. In addition, NYSE stated that d-Quotes will enable floor
brokers to compete with other participants in an automated market
place, including specialists, and may enhance the quality of order
execution on the Exchange.
    As discussed above, d-Quotes will enable floor brokers to place
within the Display Book system, in a manner that is not displayed, the
prices and sizes at which their customers are willing to trade if a
contra side order arrives in the market. The d-Quote could enable floor
brokers to better compete with other market participants, and possibly
enhance the quality of order execution on the Exchange. The Commission
believes that the Exchange's proposed d-Quote functionality is broadly
consistent with the requirements of the Act, and within the realm of
business judgment generally left to the discretion of individual
markets.
    The pegging function will enable floor brokers to remain in the
Exchange BBO as the quote moves. As the markets become more electronic
it may be very difficult for a floor broker to effectively manually
adjust the prices of its customers' orders in the Display Book system.
The Commission believes that the proposed pegging function should
provide floor brokers with the ability to track the quote as it
changes, thereby providing floor brokers with an additional tool to
offer liquidity at the Exchange BBO, once the Exchange shifts from the
manual auction market to a faster, predominantly electronic market. The
pegging function also is designed to help them continuously meet one of
the requirements for using the d-Quote--namely, maintaining an e-Quote
at the NYSE BBO. Accordingly, the Commission finds that the proposal to
implement a pegging function for floor brokers is consistent with the
requirements of the Act.

A. Comments

1. Transparency
    One commenter argued that the proposal would have an adverse impact
on transparency because the discretionary instructions would not be
disclosed to the public. The commenter argued that by not disclosing d-
Quotes to the public, the Exchange was making its market less
transparent to investors who seek liquidity and would be denying
executions to investors who post liquidity. According to the commenter,
the proposal would lessen incentives to post liquidity by allowing d-
Quotes to trade despite the existence of displayed limit orders.
    The commenter also argued that the lack of transparency of the d-
Quotes would negatively impact the price discovery process by lessening
the usefulness of the NBBO. The commenter argued that investors would
be denied complete information about the current state of the prices
and sizes at which other investors are willing to trade. Unlike the
current auction where, according to the commenter, only interest that
is disclosed is permitted to participate in an execution, d-Quotes will
participate in an execution if their terms are fulfilled without
disclosure to other market participants who may be willing to trade at
the same or better price.
    The Commission notes that it has never required complete disclosure
of all trading interest, and that it has permitted the use of
undisplayed order types. Today, for example, floor brokers may hold
significant trading interest that may be available for execution that
is not broadly disclosed, but that may participate in a transaction on
the Exchange.
    NYSE has proposed a means by which floor brokers can continue to
represent customers without having to disclose the customers' entire
orders. Floor brokers will be able to adjust their d-Quotes to reflect
their customers' investment strategies.
    The Commission believes that NYSE has designed its proposal to
allow floor brokers to represent their customers in a manner similar to
how they operate in the auction market. The Commission believes that
the proposal is not likely to substantially reduce transparency because
these orders are not currently displayed. The Commission also notes
that it has approved similar undisplayed order types for use by other
markets.\105\ Accordingly, the Commission finds that the proposal is
consistent with the Act.
---------------------------------------------------------------------------

    \105\ See Securities Exchange Act Release Nos. 47467 (March 7,
2003), 68 FR 12134 (March 13, 2003) (approving pegging orders in
Pacific Exchange, Inc.) and 48798 (November 17, 2003), 68 FR 66147
(November 25, 2003) (approving pegging orders in Nasdaq Stock
Market, Inc.); and 44983 (October 25, 2001), 66 FR 55225 (November
1, 2001) (approving discretionary orders in Pacific Exchange, Inc.)
and 49085 (January 15, 2004), 69 FR 3412 (January 23, 2004)
(approving discretionary orders in Nasdaq Stock Market, Inc.). See
also Securities Exchange Act Release No. 54511 (September 26, 2006),
71 FR 58460 (October 3, 2006) (approving passive liquidity order in
NYSE Arca, Inc.).
---------------------------------------------------------------------------

2. Informational Advantages for Floor Brokers
    In the proposal, the Exchange states that it is intending to
replicate, in the Hybrid Market, the manner in which floor brokers
utilize their judgment in quoting and trading on behalf of their
customers' orders in the auction market. One commenter questions
whether the proposal actually replicates the auction market.\106\ The
commenter believes that the proposal would introduce a new manner of
trading that is unfair to public limit orders and provides
informational advantages to floor brokers. The commenter believes that
the proposal would replicate the time and place advantage enjoyed by
floor brokers in the auction market, without maintaining the
counterbalance of the auction market's transparency of bids and offers,
and the requirement that orders cannot trade before they are exposed to
the market. Further, the commenter argued that floor brokers could
enter their d-Quotes with full knowledge of the public limit orders,
while public investors would not be provided reciprocal knowledge of
the d-Quotes. Thus, the commenter believes that public investors are
inappropriately denied the ability to change their limit prices in
response to the trading instructions attached to d-Quotes.
---------------------------------------------------------------------------

    \106\ See Rutherfurd Letters I and III.
---------------------------------------------------------------------------

    In the Response to Comments, the Exchange noted that, without d-
Quotes, investors that use floor brokers to represent their orders
would not be able to access the Hybrid Market in a similar manner to
which they access the auction market today. The Exchange believes that
it designed the proposal to closely replicate the auction market in an
electronic environment.
    Further, the Exchange responds that in today's auction market,
orders that are held and represented by floor brokers are not
transparent. The Exchange represented that it designed the proposal to
permit floor brokers to make the same types of trading decisions for
the orders they hold in the Crowd today. The Exchange believes the

proposal would not substantially alter the amount of information
currently available on the Exchange. Specialists and floor brokers
would not have access to information about d-Quotes entered by other
floor brokers. The Exchange also stated that public investors entering
limit orders would have the same amount of information as is currently
available, which does not include knowledge of floor broker trading
interest. Likewise, floor brokers would not have any more market
information on the Exchange than they do today.
    Accordingly, the Commission does not believe that the proposal
would provide floor brokers with an inappropriate informational
advantage or reduce the amount of information that is currently
publicly available.
3. Section 11A of the Act
    One commenter argued that the proposal was inconsistent with
Section 6(b) of the Act and Section 11A(a)(1)(C)(i) of the Act \107\
because the commenter believes that the proposal is unfairly
discriminatory and anti-competitive.\108\ Specifically, the commenter
argues that because the proposal would provide floor brokers with an
exclusive right to enter d-Quotes, the proposal unfairly discriminates
against customers who do not use floor brokers, and places a burden on
competition that is not necessary in furtherance of the purposes of the
Act. Further, the commenter argues that the proposal inhibits the
economically efficient execution of orders, which Section
11A(a)(1)(C)(i) of the Act \109\ states is a goal of the national
market system. The commenter notes that, under the proposal, investors
who seek to utilize discretionary instructions would be forced to pay a
floor broker, who the commenter argues, then merely performs the
clerical function of entering the order into the Exchange system for
execution. The commenter believes that institutional investors should
be free to exercise their own judgment without the requirement to
employ any third parties. The commenter also noted that all market
participants should have a fair opportunity to trade and trading should
not be conducted with unnecessary human intervention.
---------------------------------------------------------------------------

    \107\ 15 U.S.C. 78k-1(a)(1)(C)(i).
    \108\ See Rutherfurd Letters I and III.
    \109\ 15 U.S.C. 78k-1(a)(1)(C)(i).
---------------------------------------------------------------------------

    The Commission notes that today if investors wish to have their
orders represented in the NYSE auction market, they must either send
their order to the Book for representation by a specialist or send
their order to a floor broker for representation.\110\ In the Hybrid
Market, NYSE has decided to retain a role for its floor members in its
market. The commenter stated that he believed that ``pure electronic
trading is not only defensible but highly desirable'' and thus, appears
to fundamentally disagree with the market structure that NYSE has
developed. However, Congress clearly contemplated that the markets
should be able to compete through the adoption of different market
models.\111\
---------------------------------------------------------------------------

    \110\ Small marketable limit orders can be automatically
executed in Direct+.
    \111\ As Congress noted when it adopted the 1975 Act Amendments
that it was ``not the intention of the bill to force all markets for
all securities into a single mold.'' See S. Rep. No. 94-75, 94th
Cong., 1st Sess. 7 (1975). Congress instructed the Commission to
seek to ``enhance competition and to allow economic forces,
interacting with a fair regulatory field, to arrive at appropriate
variation in practices and services. It would obviously be contrary
to this purpose to compel elimination of differences between types
of markets or types of firms that might be competition-enhancing.
Id.
---------------------------------------------------------------------------

    NYSE has sought to replicate its current market in a more
electronic manner, yet while retaining some distinctive features of its
floor. As the Commission indicated in the Hybrid Market Order, the
Exchange has a degree of flexibility to develop its market model so
long as it does so within the framework of the Act.
    The Commission believes that the proposal is broadly consistent
with Section 11A of the Act in that it incorporates features that may
provide investors with the opportunity to receive economically
efficient execution of their securities transactions and promote fair
and orderly markets.\112\ The Commission believes that while d-Quotes
would not be displayed, they could provide benefits to the market such
as increased liquidity and improved prices. The Commission notes that
undisplayed d-Quotes would never execute ahead of a displayed order
that is at the same or better price.
---------------------------------------------------------------------------

    \112\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

    A significant feature of the d-Quote is to potentially offer public
investors a means, through the use of floor brokers, to compete with
specialists in providing price improvement to incoming marketable
orders. The Commission believes that d-Quote could provide meaningful
competition to the specialist in providing price improvement, and thus
promote competition on the Exchange floor.
    Accordingly, the Commission does not believe that the proposal is
inconsistent with Section 11A of the Act.\113\
---------------------------------------------------------------------------

    \113\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

4. Sweeps
    In the Hybrid Market, once an auto ex order trades with interest at
the Exchange BBO, the remainder, if any, would automatically sweep the
Display Book system by trading with liquidity outside the BBO. Under
the proposal, d-Quotes could also participate in sweeps initiated by
other orders, but their discretionary instructions would not be
active.\114\ One commenter believes that a sweep initiated by other
orders should not deactivate the discretionary instructions.\115\ The
Exchange responds that when a d-Quote is participating in a sweep, the
discretionary functions would not provide additional value to the
customer.
---------------------------------------------------------------------------

    \114\ See proposed NYSE Rule 70.25(d)(ix).
    \115\ See IBAC Letter.
---------------------------------------------------------------------------

    The Commission believes that the Exchange has some latitude to
determine the types of functions that it believes would be most
attractive to its market participants. Accordingly, the Commission
believes that the treatment of d-Quote in sweeps is reasonable and
broadly consistent with the requirements of the Act.
5. Implementation
    The Exchange proposes to implement the d-Quote proposal in two
parts, in Phase 3 and Phase 4 of the Hybrid Market implementation. One
commenter argued that d-Quote should be implemented at the same time as
the Specialist Algorithms, because the commenter believes that the
proposal is necessary to maintain market balance.\116\ The commenter
believes that implementing the Specialist Algorithms first would risk a
mass exodus of volume from the Exchange. In the Response to Comments,
the Exchange stated that, due to the complexities of the system changes
required by the implementation of the Hybrid Market, the Exchange is
not able to launch the proposal at the same time as the Specialist
Algorithms.
---------------------------------------------------------------------------

    \116\ See IBAC Letter.
---------------------------------------------------------------------------

    The Commission believes that the Exchange's proposed implementation
schedule is reasonable and consistent with the requirements of the Act.
The Commission notes that Phase 3 is when the Exchange anticipates
switching to a substantially more automated market, and believes that
the proposed staggered implementation schedule is reasonably designed
to allow the Exchange to adequately test the changes to its systems.

VI. 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 Section 6(b)(5) of the Act\117\ and Section
11A of the Act.\118\
---------------------------------------------------------------------------

    \117\ 15 U.S.C. 78f(b)(5).
    \118\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\119\ that the proposed rule change (SR-NYSE-2006-36) and Amendment
Nos. 1 and 2 are approved.
---------------------------------------------------------------------------

    \119\ 15 U.S.C. 78s(b)(2).
    \120\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\120\
Nancy M. Morris,
Secretary.
[FR Doc. E6-16888 Filed 10-11-06; 8:45 am]

BILLING CODE 8011-01-P


[Federal Register: October 18, 2007 (Volume 72, Number 201)]
[Notices]
[Page 59142]
[DOCID:fr18oc07-93]

-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

Fourth Meeting: RTCA Special Committee 210, Cabin Management
Systems

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of RTCA Special Committee 210, Cabin Management System.

-----------------------------------------------------------------------

SUMMARY: The FAA is issuing this notice to advise the public of a
meeting of RTCA Special Committee 210, Cabin Management.

DATES: The meeting will be held October 23-25, 2007 from 9-5 p.m.

ADDRESSES: The meeting will be held at RTCA, Inc., 1828 L Street, NW.,
Suite 805, Washington, DC 20036, ARINC, Colson & Garmin Rooms.

FOR FURTHER INFORMATION CONTACT: (1) RTCA Secretariat, 1828 L Street,
NW., Suite 805, Washington, DC 20036; telephone<PHONE_NUMBER>; fax
(202) 833-9434; Web site http://www.rtca.org.

SUPPLEMENTARY INFORMATION: Pursuant to section 10(a)(2) of the Federal
Advisory Committee Act (Pub. L. 92-463, 5 U.S.C. Appendix 2), notice is
hereby given for a Special Committee 210, Cabin Management Systems
meeting. The agenda will include:
     October 23:
      Opening Plenary Session (Welcome, Introductions, and
Administrative Remarks, Review of Agenda).
      Approval of Summary of the Third held August 1-2, 2007,
RTCA Paper No. 213-07/SC210-007.
      PMC Update--RTCA.
      Regulatory Update.
      FAA.
      Transport Canada.
      EUROCAE/ICAO.
      TSO 138 (Miscellaneous Non-Required Equipment)
Discussion.
      Discussion of Applicability of Wireless Cabin Equipment.
      Reports from Working Groups.
      Current Status (accomplishments since last plenary)
except WG-1 to be complete and members to join other WGs.
      Objective for this plenary.
      Review of WG Project Schedule.
      Overall direction for Working Groups (Chair).
      Organization Items; Leadership, WG Structure, etc.
      Project End Date for Communication to PMC.
      Close Plenary Meeting.
      Break-up for Specific Working Group Sessions.
      Working Group 1, Document Review/Assessment, Garmin Room.
      Working Group 2, Cabin Management Function
Classification, ARINC Room.
      Working Group 3, Commercial off-the-Shelf (COTS)
Assessment, Colson Room.
      Close out of day's activities.
      Items for group discussion/resolution.
      Review of tomorrow's activities.
     October 24:
      Continue Specific Working Group Session.
      WG-2, Cabin Management Function Classification.
      WG-3, Commercial off-the-Shelf (COTS) Assessment.
      Close out of day's activities.
      Items for Group Discussion/Resolution.
      Review of tomorrow's activities.
     October 25:
      Continue Specific Working Group Sessions.
      WG-2, Cabin Management Function Classification.
      WG-3, Commercial off-the-Shelf (COTS) Assessment.
      Convene to Continue Plenary Meeting.
      Reports from Working Group Chairs.
      Current Status (accomplishments during plenary).
      Discussion/Resolution of outstanding issues.
      Anticipated accomplishments by next plenary and plan to
achieve.
      Discussion of document creation and text writing
assignments.
      Document Structure/Review.
      Assignment of Responsibilities.
      Closing Plenary Session (Other Business, Establish Agenda
for Next Meeting, Date, and Place of Next Meeting, Adjourn).
    Attendance is open to the interested public but limited to space
availability. With the approval of the chairmen, members of the public
may present oral statements at the meeting. Persons wishing to present
statements or obtain information should contact the person listed in
the for further information contact section.
    Members of the public may present a written statement to the
committee at any time.

    Issued in Washington, DC, on October 1, 2007.
Robert L. Bostiga,
RTCA Advisory Committee (Acting).
[FR Doc. 07-5150 Filed 10-17-07; 8:45 am]

BILLING CODE 4910-13-M


[Federal Register Volume 88, Number 227 (Tuesday, November 28, 2023)]
[Notices]
[Pages 83140-83141]
[FR Doc No: 2023-26098]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

[Docket Nos. FDA-2022-E-2178 and FDA-2022-E-2179]

Determination of Regulatory Review Period for Purposes of Patent
Extension; Cosela

AGENCY: Food and Drug Administration, HHS.

ACTION: Notice.

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SUMMARY: The Food and Drug Administration (FDA or the Agency) has
determined the regulatory review period for Cosela and is publishing
this notice of that determination as required by law. FDA has made the
determination because of the submission of applications to the Director
of the U.S. Patent and Trademark Office (USPTO), Department of
Commerce, for the extension of a patent which claims that human drug
product.

DATES: Anyone with knowledge that any of the dates as published (see
SUPPLEMENTARY INFORMATION) are incorrect may submit either electronic
or written comments and ask for a redetermination by January 29, 2024.
Furthermore, any interested person may petition FDA for a determination
regarding whether the applicant for extension acted with due diligence
during the regulatory review period by May 28, 2024. See ``Petitions''
in the SUPPLEMENTARY INFORMATION section for more information.

ADDRESSES: You may submit comments as follows. Please note that late,
untimely filed comments will not be considered. The https://www.regulations.gov electronic filing system will accept comments until
11:59 p.m. Eastern Time at the end of January 29, 2024. Comments
received by mail/hand delivery/courier (for written/paper submissions)
will be considered timely if they are received on or before that date.

Electronic Submissions

    Submit electronic comments in the following way:
     Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments. Comments submitted
electronically, including attachments, to https://www.regulations.gov
will be posted to the docket unchanged. Because your comment will be
made public, you are solely responsible for ensuring that your comment
does not include any confidential information that you or a third party
may not wish to be posted, such as medical information, your or anyone
else's Social Security number, or confidential business information,
such as a manufacturing process. Please note that if you include your
name, contact information, or other information that identifies you in
the body of your comments, that information will be posted on https://www.regulations.gov.
     If you want to submit a comment with confidential
information that you do not wish to be made available to the public,
submit the comment as a written/paper submission and in the manner
detailed (see ``Written/Paper Submissions'' and ``Instructions'').

Written/Paper Submissions

    Submit written/paper submissions as follows:
     Mail/Hand Delivery/Courier (for written/paper
submissions): Dockets Management Staff (HFA-305), Food and Drug
Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852.
     For written/paper comments submitted to the Dockets
Management Staff, FDA will post your comment, as well as any
attachments, except for information submitted, marked and identified,
as confidential, if submitted as detailed in ``Instructions.''
    Instructions: All submissions received must include the Docket Nos.
FDA-2022-E-2178 and FDA-2022-E-2179 for ``Determination of Regulatory
Review Period for Purposes of Patent Extension; COSELA.'' Received
comments, those filed in a timely manner (see ADDRESSES), will be
placed in the docket and, except for those submitted as ``Confidential
Submissions,'' publicly viewable at https://www.regulations.gov or at
the Dockets Management Staff between 9 a.m. and 4 p.m., Monday through
Friday,<PHONE_NUMBER>.
     Confidential Submissions--To submit a comment with
confidential information that you do not wish to be made publicly
available, submit your comments only as a written/paper submission. You
should submit two copies total. One copy will include the information
you claim to be confidential with a heading or cover note that states
``THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.'' The Agency will
review this copy, including the claimed confidential information, in
its consideration of comments. The second copy, which will have the
claimed confidential information redacted/blacked out, will be
available for public viewing and posted on https://www.regulations.gov.
Submit both copies to the Dockets Management Staff. If you do not wish
your name and contact information to be made publicly available, you
can provide this information on the cover sheet and not in the body of
your comments and you must identify this information as
``confidential.'' Any information marked as ``confidential'' will not
be disclosed except in accordance with Sec.  10.20 (21 CFR 10.20) and
other applicable disclosure law. For more information about FDA's
posting of comments to public dockets, see 80 FR 56469, September 18,
2015, or access the information at: https://www.govinfo.gov/content/pkg/FR-2015-09-18/pdf/2015-23389.pdf.
    Docket: For access to the docket to read background documents or
the electronic and written/paper comments received, go to https://www.regulations.gov and insert the docket number, found in brackets in
the heading of this document, into the ``Search'' box and follow the
prompts and/or go to the Dockets Management Staff, 5630 Fishers Lane,
Rm. 1061, Rockville, MD 20852,<PHONE_NUMBER>.

FOR FURTHER INFORMATION CONTACT: Beverly Friedman, Office of Regulatory
Policy, Food and Drug Administration, 10903 New Hampshire Ave., Bldg.
51, Rm. 6250, Silver Spring, MD 20993,<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

I. Background

    The Drug Price Competition and Patent Term Restoration Act of 1984
(Pub. L. 98-417) and the Generic Animal Drug and Patent Term
Restoration Act (Pub. L. 100-670) generally provide that a patent may
be extended for a period of up to 5 years so long as the patented item
(human drug or biologic product, animal drug product, medical device,
food additive, or color additive) was subject to regulatory review by
FDA before the item was marketed. Under these acts, a product's
regulatory review period forms the basis for determining the amount of
extension an applicant may receive.
    A regulatory review period consists of two periods of time: a
testing phase and an approval phase. For human drug products, the
testing phase begins when the exemption to permit the clinical
investigations of the drug becomes effective and runs until the
approval phase begins. The approval phase starts with the initial
submission of an

application to market the human drug product and continues until FDA
grants permission to market the drug product. Although only a portion
of a regulatory review period may count toward the actual amount of
extension that the Director of USPTO may award (for example, half the
testing phase must be subtracted as well as any time that may have
occurred before the patent was issued), FDA's determination of the
length of a regulatory review period for a human drug product will
include all of the testing phase and approval phase as specified in 35
U.S.C. 156(g)(1)(B).
    FDA has approved for marketing the human drug product, Cosela
(trilaciclib), which is indicated to decrease the incidence of
chemotherapy-induced myelosuppression in adult patients when
administered prior to a platinum/etoposide-containing regimen or
topetecan-containing regimen for extensive-stage small cell lung
cancer. Subsequent to this approval, the USPTO received a patent term
restoration application for Cosela (U.S. Patent Nos. 8,598,186 and
9,487,530) from GI Therapeutics, Inc., and the USPTO requested FDA's
assistance in determining the patent's eligibility for patent term
restoration. In a letter dated September 21, 2022, FDA advised the
USPTO that this human drug product had undergone a regulatory review
period and that the approval of Cosela represented the first permitted
commercial marketing or use of the product. Thereafter, the USPTO
requested that FDA determine the product's regulatory review period.

II. Determination of Regulatory Review Period

    FDA has determined that the applicable regulatory review period for
Cosela is 2,081 days. Of this time, 1,838 days occurred during the
testing phase of the regulatory review period, while 243 days occurred
during the approval phase. These periods of time were derived from the
following dates:
    1. The date an exemption under section 505(i) of the Federal Food,
Drug, and Cosmetic Act (FD&C Act) (21 U.S.C. 355(i)) became effective:
June 5, 2015. FDA has verified the applicant's claim that the date the
investigational new drug application became effective was on June 5,
2015.
    2. The date the application was initially submitted with respect to
the human drug product under section 505 of the FD&C Act: June 15,
2020. FDA has verified the applicant's claim that the new drug
application (NDA) for Cosela (NDA 214200) was initially submitted on
June 15, 2020.
    3. The date the application was approved: February 12, 2021. FDA
has verified the applicant's claim that NDA 214200 was approved on
February 12, 2021.
    This determination of the regulatory review period establishes the
maximum potential length of a patent extension. However, the USPTO
applies several statutory limitations in its calculations of the actual
period for patent extension. In its applications for patent extension,
this applicant seeks 335 days or 1,162 days of patent term extension.

III. Petitions

    Anyone with knowledge that any of the dates as published are
incorrect may submit either electronic or written comments and, under
21 CFR 60.24, ask for a redetermination (see DATES). Furthermore, as
specified in Sec.  60.30 (21 CFR 60.30), any interested person may
petition FDA for a determination regarding whether the applicant for
extension acted with due diligence during the regulatory review period.
To meet its burden, the petition must comply with all the requirements
of Sec.  60.30, including but not limited to: must be timely (see
DATES), must be filed in accordance with Sec.  10.20, must contain
sufficient facts to merit an FDA investigation, and must certify that a
true and complete copy of the petition has been served upon the patent
applicant. (See H. Rept. 857, part 1, 98th Cong., 2d sess., pp. 41-42,
1984.) Petitions should be in the format specified in 21 CFR 10.30.
    Submit petitions electronically to https://www.regulations.gov at
Docket No. FDA-2013-S-0610. Submit written petitions (two copies are
required) to the Dockets Management Staff (HFA-305), Food and Drug
Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852.

    Dated: November 21, 2023.
Lauren K. Roth,
Associate Commissioner for Policy.
[FR Doc. 2023-26098 Filed 11-27-23; 8:45 am]
BILLING CODE 4164-01-P