Daily Rules, Proposed Rules, and Notices of the Federal Government
The Exchange proposes to delete NYSE Rules 95(c) and (d) and related Supplementary Material. The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to delete NYSE Rules 95(c) and (d) and related Supplementary Material concerning restrictions on the ability of a Floor broker to engage in intra-day trading.
Rule 95(c) provides that:
If a Floor broker acquires a position for an account during a particular trading session while representing at the same time, on behalf of that account, market or limit orders at the minimum variation on both sides of the market, the broker may liquidate or cover the position established during that trading session only pursuant to a new order (a liquidating order) which must be time-recorded upstairs and upon receipt on the trading Floor.
As a related matter, Rule 95(d) requires that a Floor broker must execute the liquidating order entered pursuant to Rule 95(c) before the Floor broker can execute any other order for the same account on the same side of the market as that liquidating order. The Supplementary Material sets forth
The Exchange adopted Rules 95(c) and (d) and related Supplementary Material .20 and .30 in 1994.
The Exchange proposes to delete NYSE Rules 95(c) and (d) and related Supplementary Material as outdated in today's market structure and an unnecessary restriction on the ability of Floor brokers to represent orders on behalf of their customers.
The Exchange believes that the rationale and approach underlying current Rules 95(c) and (d) no longer exists in today's trading environment. At the time Rules 95(c) and (d) were adopted, orders entered in the specialist's book experienced greater latency than did orders handled by Floor brokers. In particular, neither immediate limit order display nor auto execution existed at that time and, as a result, "book" orders could not be executed until the specialist manually executed them. Floor brokers in 1994, in other words, could stand at the point of sale and trade more quickly because of that position. Currently, incoming electronic orders are executed automatically in microseconds, and "book" orders receive immediate limit order display. Moreover, the passage of Floor broker orders through Floor systems today adds an additional layer of latency relative to the prior context. While the rationale for Rules 95(c) and (d) was that Floor broker customers could "crowd-out small customer limit orders and delay or prevent their execution,"
Additionally, since adopting the rule, the equities markets in general, and the Exchange in particular, have undergone market structure changes that obviate the need for this rule-based restriction on how a Floor broker represents orders on behalf of customers. For example, the Commission adopted Regulation NMS in 2005
Specifically, the changing role of the Floor broker can be seen in both the overall reduction in the Exchange's market share in its listed securities, as well as the decline in the Floor broker's share of Exchange volume and increased reliance on automatic execution. Prior to the adoption of the Hybrid Market, the Exchange had about an 80% market share in its listed securities and approximately 25% of that volume was from Floor broker transactions. Within a year of the approval of the Hybrid Market, automatic execution accounted for 82% of NYSE volume and Floor broker executions declined to 11% of overall Exchange volume.
In addition, trading strategies have evolved since the enactment of Rule 95(c). Today one third of all equity trading takes place off-exchange and over 1,200 securities have more than 50% of their volume traded off-exchange, an increase of 143% in less than two years. Among other changes, off-Floor participants regularly engage in buy and sell side trading strategies, i.e., "intra-day trading." In today's micro-second market, there is no longer a competitive advantage to being on the trading Floor when engaging in the type of intra-day trading addressed by Rules 95(c) and (d). Rather, due to the increase in the speed of trading, the increased fragmentation of the equity markets, and the dissemination of market information available to off-Floor participants, many off-Floor participants are able to synthesize market information across multiple markets faster than a Floor broker can do so from their physical presence on the Exchange trading Floor. Accordingly, to the extent there may still be a time and place advantage for Floor brokers by virtue of their presence on the Trading Floor, the Exchange believes that the type of information available to Floor brokers is no longer
As a result of the above-discussed changes, Rules 95(c) and (d) are no longer operating to place Floor brokers on equal footing as other market participants, but instead are placing them at a disadvantage to other participants in the largely automatic market that has developed in the almost twenty years since the restrictions were put in place. Therefore, the Exchange believes it is appropriate to delete Rules 95(c) and (d) and related Supplementary Material. By deleting a trading restriction that was adopted in response to a specific market structure that has fundamentally changed since 2005, the Exchange believes that the proposed rule changes will serve to place Floor brokers on a more equal footing with other market participants utilizing automatic executions.
Furthermore, the Exchange notes that the manner that the current rule requires a Floor broker to comply with the rule is based on an auction market model where a rule-based speed bump that required a Floor broker to obtain a new time-stamped order from a customer was feasible.
In additional to the above-referenced changes, the Exchange proposes to delete Supplementary Material .20 and .30 to Rule 95, which were added as part of the addition of paragraphs (c) and (d) to Rule 95 in 1994. The Exchange proposes to keep Supplementary Material .10 to Rule 95.
The Exchange believes that the proposed rule change is consistent with the requirements of Section 6(b) of the Act,
The fundamental changes that the Exchange has undergone in the roughly twenty years since the adoption of Rules 95(c) and (d) have left the underlying rationale behind their adoption obsolete. The significant increase in market speed and the reduced role of Floor brokers have largely eliminated the concerns that Rules 95(c) and (d) were intended to address. By deleting a trading restriction that was adopted in response to a specific market structure that has fundamentally changed since 2005, the Exchange believes that the proposed rule changes will serve to place Floor brokers on a more equal footing with other market participants utilizing automatic executions.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
No written comments were solicited or received with respect to the proposed rule change.
Within 45 days of the date of publication of this notice in the
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule change should be disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.