[Federal Register Volume 75, Number 89 (Monday, May 10, 2010)]
[Notices]
[Pages 25892-25895]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10967]
[[Page 25892]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62013; File No. SR-NYSEArca-2010-35]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending Market
Maker Requirements for Certain Covered Products
April 30, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on April 23, 2010, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to (i) amend NYSE Arca Equities Rule 6.3 and
(ii) remove the requirement that Market Makers in certain covered
products enumerated below maintain certain specifically prescribed
information barrier procedures, but instead apply the standards
established with the Commission's order approving SR-NYSEArca-2009-78
(hereinafter referred to as the ``Order'').\3\ A copy of this filing is
available on the Exchange's Web site at http://www.nyse.com, at the
Exchange's principal office, at the Commission's Public Reference Room,
and on the Commission's Web site at http://www.sec.gov.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 60604 (September 1,
2009), 74 FR 46272 (September 8, 2009) (Order approving (i) the
removal of NYSE Arca Equities Rule 7.26 ``Limitations on Dealings'',
(ii) the adoption of new NYSE Arca Equities Rule 6.7 ``Trading Ahead
of Research Reports'', and (iii) the amendment of NYSE Arca Equities
Rule 6.18 ``Supervision'').
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background Information
The Exchange eliminated the requirement set forth in NYSE Arca
Equities Rule 7.26 that Market Makers on the Corporation maintain
certain specifically prescribed information barrier procedures.\4\ At
the same time, the Exchange further proposed new NYSE Arca Equities
Rule 6.7, which (i) prohibits ETP Holders from trading ahead of
research reports and (ii) requires each ETP Holder to establish,
maintain and enforce procedures regarding the flow of information
between research department personnel and trading department personnel.
Finally, the Exchange revised NYSE Arca Equities Rule 6.18 to
incorporate compliance with NASD Rule 3010(a)(1), (b)(1), and (c)(1).
---------------------------------------------------------------------------
\4\ Id.
---------------------------------------------------------------------------
NYSE Arca Equities Rules 5 & 8
Currently, certain product related NYSE Arca Equities rules cross
reference NYSE Arca Equities Rule 7.26 regarding information barriers.
These cross references to NYSE Arca Equities Rule 7.26 and the
attendant obligations, contained in Rules 5.2(j)(6), 8.200, 8.201,
8.202, 8.203, 8.204, 8.300, 8.400, 8.500, and 8.700, generally expanded
the definition of ``other business activities'' as set forth in NYSE
Arca Equities Rule 7.26 so as to require ETP Holders acting as a Market
Maker in the covered products to maintain information barrier
procedures when the Market Maker (or an affiliate) engages in certain
other business activities related to the covered products. At the time
the Exchange eliminated NYSE Arca Equities rule 7.26, it did not
further eliminate or otherwise amend the obligations set forth in Rules
5.2(j)(6), 8.200, 8.201, 8.202, 8.203, 8.204, 8.300, 8.400, 8.500, and
8.700. The current limitations and prohibitions set forth in these
rules also specifically prohibit ETP Holders acting as Market Makers in
the covered products from using any material nonpublic information
received from any person associated with an ETP Holder or employee of
such person regarding trading by such person or employee in any
components of the related products or any related derivative
instruments. The purpose of this filing is to eliminate the requirement
that Market Makers must maintain certain specifically prescribed
information barrier procedures and thereby conform the standards
applicable to the covered products to the standards established with
the elimination of NYSE Arca Equities Rule 7.26, the adoption of NYSE
Equities Rule 6.7, and the amendment to NYSE Arca Equities Rule 6.18.
In so doing, the Exchange also seeks to amend NYSE Arca Rule 6.3 in
order to confirm that ETP Holders acting as Market Makers in the
covered products (and their affiliates) must establish, maintain and
enforce written policies and procedures reasonably designed to prevent
the misuse of any material nonpublic information with respect to such
products, any components of the related products, any physical asset or
commodity underlying the product, applicable currencies, underlying
indexes, related futures or options on futures, and any related
derivative instruments. This proposal is consistent with the
elimination of Rule 7.26 and the related changes to NYSE Arca Equities
Rules 6.7 and 6.18. Removal of these cross references is also
consistent with the current approach taken by Nasdaq.\5\ Furthermore,
the Exchange notes that Market Makers on NYSE Arca must comply with
their obligations to maintain and enforce written policies and
procedures reasonably designed to prevent the misuse of material, non-
public information.
---------------------------------------------------------------------------
\5\ See Nasdaq Rule 5710 (Securities Linked to the Performance
of Indexes and Commodities (Including Currencies) and Nasdaq Rule
5740 (Derivative Securities Traded Under Unlisted Trading
Privileges).
---------------------------------------------------------------------------
Example of Rule Text To Be Removed, Commentary .01(a) to Rule 5.2(j)(6)
The following example identifies the typical cross reference to
Rule 7.26 and the attendant text that the Exchange proposes to
eliminate. Rule 5.2(j)(6) describes the Exchange's listing standards
for Equity Index-Linked Securities, Commodity-Linked Securities,
Currency-Linked Securities, Fixed Income Index-Linked Securities,
Futures-Linked Securities and Multifactor Index-Linked Securities.
Commentary .01(a) to this rule states:
An ETP Holder acting as a registered Market Maker in Commodity-
Linked Securities, Currency-Linked Securities, Futures-Linked
Securities or Multifactor Index-Linked Securities, which is composed in
part of Commodity or
[[Page 25893]]
Currency Reference Assets, is obligated to comply with Rule 7.26
pertaining to limitations on dealings when such Market Maker, or
affiliate of such Market Maker, engages in Other Business Activities.
For purposes of Commodity-Linked Securities, Currency-Linked
Securities, Futures-Linked Securities or Multifactor Index-Linked
Securities, if applicable, Other Business Activities shall include
acting as a Market Maker or functioning in any capacity involving
market-making responsibilities in the Commodity Reference Asset,
Currency Reference Asset, or Futures Reference Asset as applicable
(Commodity Reference Assets, Currency Reference Assets, and Futures
Reference Assets together, ``Index Assets''), the components underlying
the Reference Asset, the commodities, currencies or futures underlying
the Index Asset components, or options, futures or options on futures
on the Index Asset, or any other derivatives (collectively,
``derivative instruments'') based on the Index Asset or based on any
Index Asset component or any physical commodity, currency or futures
underlying an Index Asset component. However, an approved person of an
ETP Holder acting as a registered Market Maker in Commodity-Linked
Securities, Currency-Linked Securities, Futures-Linked Securities or
Multifactor Index-Linked Securities, if applicable, that has
established and obtained Corporation approval of procedures restricting
the flow of material, non-public market information between itself and
the ETP Holder pursuant to Rule 7.26, and any member, officer or
employee associated therewith, may act in a market making capacity,
other than as a Market Maker in the Commodity-Linked Securities,
Currency-Linked Securities, Futures-Linked Securities or Multifactor
Index-Linked Securities, if applicable, on another market center, in
the Index Asset components, the commodities, currencies or futures
underlying the Index Asset components, or any derivative instruments
based on the Index Asset or based on any Index Asset component or any
physical commodity, currency or futures underlying an Index Asset
component.
The first sentence of this commentary is designed to remind Market
Makers on NYSE Arca of their obligation to comply with Rule 7.26 when
it engages in ``Other Business Activities''--a term that had been
defined in Rule 7.26. The second sentence of this commentary defines,
in the context of this product, the term ``Other Business Activities''.
The third and final sentence of this commentary reminds Market Makers
that, consistent with Rule 7.26, they may act in certain market making
capacities if they have established, and obtained the Exchange's
approval of, appropriate procedures.
By removing this commentary and applying the standards established
by the Order, the Exchange is amending its rules in a manner consistent
with the standards previously approved by the Commission.\6\ Market
Makers must comply with NYSE Arca Equities Rules 6.3 (as revised
herein) and 6.18, which prohibit Market Makers from using material non-
public information and require all ETP Holders to establish, maintain,
and enforce written policies and procedures designed to supervise the
business in which it engages and to prevent the misuse of material,
non-public information. In this regulatory framework, it is no longer
necessary for the Exchange to prescribe specific information barrier
procedures. In addition, as revised, the requirements of Rule 5.2(j)(6)
are generally consistent with those set forth in Nasdaq Rule 5710.
---------------------------------------------------------------------------
\6\ See note 3, supra.
---------------------------------------------------------------------------
By eliminating Rule 7.26 and establishing standards similar to
Nasdaq's, the Exchange has placed its participants on notice as to
their obligations to maintain and enforce written policies and
procedures reasonably designed to prevent the misuse of material, non-
public information. Moreover, by revising Rule 6.3, as described
herein, ETP Holders acting as Market Makers are on notice that they are
prohibited from using material, non-public information. Finally, Market
Makers on NYSE Arca (and their affiliates) remain on notice of their
obligations to maintain and enforce written policies and procedures
reasonably designed to prevent the misuse of material, non-public
information.
Conforming Commentary to NYSE Arca Equities Rule 6.3
The Exchange proposes adding new commentary .04 to Rule 6.3,
Prevention of the Misuse of Material, Nonpublic Information. By adding
this commentary, described below, the Exchange seeks to extend the
requirements of Rule 6.3 regarding each ETP Holder's obligation to
establish, maintain, and enforce written policies and procedures
reasonably designed to prevent the misuse of material, non-public
information applies to Market Makers engaged in the trading of
securities and/or any derivatives or non security components of any of
the products listed and traded on the Exchange pursuant to Rule 5 and
Rule 8. The proposed language of commentary .04 to Rule 6.3 is as
follows:
ETP Holders acting as a registered Market Maker in products listed
under NYSE Arca Equities Rules 5 and 8, and their affiliates, shall
also establish, maintain and enforce written policies and procedures
reasonably designed to prevent the misuse of any material nonpublic
information with respect to such products, any components of the
related products, any physical asset or commodity underlying the
product, applicable currencies, underlying indexes, related futures or
options on futures, and any related derivative instruments.
With the addition of this commentary, the Exchange proposes to
remove similar commentary contained in each of the rules highlighted
below. The specific proposed changes, consistent with the example
described above, are identified in further as follows.
NYSE Arca Equities Rule 5.2(j)(6), the Exchange's listing
standards for Equity Index-Linked Securities, Commodity-Linked
Securities, Currency-Linked Securities, Fixed Income Index-Linked
Securities, Futures-Linked Securities and Multifactor Index-Linked
Securities. The Exchange is removing Commentary .01 (a) and (d) and is
changing the numbering within the rule to accommodate for this
deletion.
NYSE Arca Equities Rule 8.200, the Exchange's listing
standards for Trust Issued Receipts. The Exchange is removing
Commentary .02 (e)(1) and (4) and is changing the numbering within the
rule to accommodate for this deletion.
NYSE Arca Equities Rule 8.201, the Exchange's listing
standards for Commodity-Based Trust Shares. The Exchange is removing
Sections (g) and (i) and is changing the numbering within the rule to
accommodate for this deletion.
NYSE Arca Equities Rule 8.202, the Exchange's listing
standards for Currency Trust Shares. The Exchange is removing Sections
(g) and (i) and is changing the numbering within the rule to
accommodate for this deletion.
NYSE Arca Equities Rule 8.203, the Exchange's listing
standards for Commodity Index Trust Shares. The Exchange is removing
Sections (g) and (i) and is changing the numbering within the rule to
accommodate for this deletion.
NYSE Arca Equities Rule 8.204, the Exchange's listing
standards for Commodity Futures Trust Shares. The
[[Page 25894]]
Exchange is removing Subsection (f)(1) and (4) and is changing the
numbering within the rule to accommodate for this deletion.
NYSE Arca Equities Rule 8.300, the Exchange's listing
standards for Partnership Units. The Exchange is removing Subsection
(e)(1) and (4) and is changing the numbering within the rule to
accommodate for this deletion.
NYSE Arca Equities Rule 8.400, the Exchange's listing
standards for Paired Trust Shares. The Exchange is removing Subsection
(e)(1) and (4) and is changing the numbering within the rule to
accommodate for this deletion.
NYSE Arca Equities Rule 8.500, the Exchange's listing
standards for Trust Units. The Exchange is removing Sections (f) and
(h) and is changing the numbering within the rule to accommodate for
this deletion.
NYSE Arca Equities Rule 8.700, the Exchange's listing
standards for Managed Trust Securities. The Exchange is removing
Subsection (f)(1) and (4) and is changing the numbering within the rule
to accommodate for this deletion.
Conforming Commentary to NYSE Arca Equities Rule 6.18
Finally, the Exchange is adding new Commentary .02 to NYSE Arca
Equities Rule 6.18. Currently, NYSE Arca Equities Rule 6.18 refers to
the obligation of an ETP Holder to supervise the business in which it
engages as well as the activities of its associated persons. By virtue
of the obligations set forth in NYSE Arca Equities Rule 6.3 (as
discussed above), however, ETP Holders that are registered Market
Makers in products listed under NYSE Arca Equities Rules 5 and 8, must
also supervise the activity of its affiliates. The Exchange is hereby
adding Commentary .02 in order to conform the supervisory obligations
of such ETP Holders to the standards of NYSE Arca Equities Rule 6.3.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Securities Exchange Act of 1934 (the
``Act''),\7\ in general, and furthers the objectives of Section 6(b)(5)
of the Act,\8\ in particular, because it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and 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. The Exchange believes that the
proposed rule change will eliminate unnecessary confusion in its rule
structure, while conforming the standards applicable to covered
products regarding the obligations of its participants to maintain and
enforce written policies and procedures reasonably designed to prevent
the misuse of material, non-public information to the standards
established with the elimination of NYSE Arca Equities Rule 7.26, the
adoption of NYSE Equities Rule 6.7, and the amendment to NYSE Arca
Equities Rule 6.18.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\ 17 CFR 240.19b-4(f)(6).
\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied the pre-filing requirement.
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
IV. Solicitation of Comments
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:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NYSEArca-2010-35 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2010-35. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of the filing also will be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
[[Page 25895]]
available publicly. All submissions should refer to File Number SR-
NYSEArca-2010-35 and should be submitted on or before June 1, 2010.
---------------------------------------------------------------------------
\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-10967 Filed 5-7-10; 8:45 am]
BILLING CODE 8010-01-P