[12138]
June 29, 2000
TO: EQUITY MARKETS ADVISORY COMMITTEE No. 39-00
RE: DRAFT INSTITUTE COMMENT LETTER ON NYSE DIRECT+ PROPOSAL
As we previously informed you,1 the Securities and Exchange Commission (“SEC”) has
published for comment a proposed rule change filed by the New York Stock Exchange (“NYSE”) relating
to NYSE Direct+, a proposed new facility of the Exchange which would provide automatic execution for
certain limit orders of 1,099 shares or less (“auto ex” orders). The Institute has prepared a draft comment
letter (attached) on the proposal.
The draft letter states that, in general, the Institute supports modifications to the Exchange’s
trading systems and supports the intent of the proposal. Nevertheless, the Institute believes that there are
certain aspects of the proposal that require further examination before the SEC approves the proposal. In
particular, the Institute questions the purpose of and necessity for the mandatory thirty second delay
between the entry by the same person of each auto ex order for the same stock. The draft letter states that
a mandatory delay of thirty seconds will frequently result in the market having moved away from the
price at which a market participant is willing to transact in that stock. The Institute therefore recommends
that, absent compelling reasons for a delay, the thirty second delay be eliminated or significantly reduced.
The draft letter also questions whether the proposed rule that provides that orders of greater than
1,099 shares may not be broken up into smaller amounts in order to receive an automatic execution would
encompass certain trading practices utilized by institutional investors. For example, would a broker
working a large order for an institution be permitted to utilize NYSE Direct+ to execute part or all of this
order. The Institute therefore requests clarification of what constitutes an “order” for purposes of the
proposed rules and recommends that the type of trading practices described above not be considered
orders for purposes of this aspect of the proposed rules.2
Finally, the draft letter recommends that price/time priority be applied to NYSE Direct+, which
would rectify, for example, a situation where a market participant would be able to participate on the
contra side of an automatic execution even though another participant may have placed an order in the
NYSE earlier in time and, if the proposal is implemented at the outset as a pilot program in a limited
number of stocks, that the pilot should include securities representing a substantial portion of the NYSE
1 See Memorandum to Equity Markets Advisory Committee No. 37-00, dated June 23, 2000.
2 The draft letter also states that the Institute strongly supports increasing the maximum number of shares that can be entered into
NYSE Direct+ (under the Proposal, an “auto ex” order is defined as a limit order of 1,099 shares or less) as the gap between the
size of orders that can be entered into NYSE’s proposed Institutional Xpress system (15,000 shares) and NYSE Direct+ is too
great and excludes a large number of orders that institutions typically place in the NYSE for execution.
2market, e.g., the top 100 NYSE listed securities, with the remainder chosen from quintiles of NYSE
securities.
Comments on this proposal are due to the SEC no later than July 6, 2000. If you have any
comments on the draft Institute letter, please provide them to the undersigned by phone at (202)
371-5408 or by e-mail at aburstein@ici.org no later than July 5.
Ari Burstein
Assistant Counsel
Attachment
Attachment (in .pdf format)