[12185]
July 6, 2000
TO: EQUITY MARKETS ADVISORY COMMITTEE No. 40-00
RE: INSTITUTE COMMENT LETTER ON NYSE DIRECT+ PROPOSAL
As we previously informed you,1 the Securities and Exchange Commission published for
comment a proposed rule change filed by the New York Stock Exchange2 (“Proposal”) 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 filed a comment letter with the
SEC on the Proposal.
The comment 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 and recommends that,
absent compelling reasons for a delay, the thirty second delay be eliminated or significantly reduced.
The comment 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. The Institute therefore
requests clarification of what constitutes an “order” for purposes of the proposed rules.
The comment letter also states that the Institute strongly supports increasing the maximum
number of shares that can be entered into NYSE Direct+ 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.
Finally, the comment 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 before being made available to all stocks, that the pilot should include securities
representing a substantial portion of the NYSE market, e.g., the top 100 NYSE listed securities, with the
remainder chosen from quintiles of NYSE securities.
1 See Memorandum to Equity Markets Advisory Committee No. 37-00, dated June 23, 2000.
2 Securities Exchange Act Release No. 42913 (June 8, 2000), 65 FR 37587 (June 15, 2000).
2A copy of the comment letter, which is substantially similar to the draft letter previously
circulated to the Committee, is attached. If you have any questions, please contact the undersigned by
phone at (202) 371-5408 or by e-mail at aburstein@ici.org.
Ari Burstein
Assistant Counsel
Attachment
Attachment (in .pdf format)