[Federal Register Volume 75, Number 236 (Thursday, December 9, 2010)]
[Notices]
[Pages 76759-76762]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30883]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63418; File No. SR-NYSEAmex-2010-108]
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Eliminate Market
and Stop Orders in Nasdaq-Listed Securities Traded on the Exchange
December 2, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the
[[Page 76760]]
``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 22, 2010, NYSE Amex LLC (the ``Exchange'' or ``NYSE Amex'')
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 Exchange. 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 amend Rule 501--NYSE Amex Equities to
eliminate Market and Stop Orders in Nasdaq-listed securities traded on
the Exchange. The text of the proposed rule change is available at the
Exchange's principal office, the Commission's Public Reference Room,
and http://www.nyse.com.
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend Rule 501--NYSE
Amex Equities to eliminate Market and Stop Orders in Nasdaq-listed
securities traded on the Exchange.
Background
Rules 500-525--NYSE Amex Equities, as a pilot program, govern the
trading of any Nasdaq-listed security on the Exchange pursuant to
unlisted trading privileges (``UTP Pilot Program'').\3\ The UTP Pilot
Program includes any security listed on Nasdaq that (i) is designated
as an ``eligible security'' under the Joint Self-Regulatory
Organization Plan Governing the Collection, Consolidation and
Dissemination of Quotation and Transaction Information for Nasdaq-
Listed Securities Traded on Exchanges on an Unlisted Trading Privilege
Basis, as amended (``UTP Plan''),\4\ and (ii) has been admitted to
dealings on the Exchange pursuant to a grant of unlisted trading
privileges in accordance with Section 12(f) of the Securities Exchange
Act of 1934, as amended (the ``Act'') \5\ (collectively, ``Nasdaq
Securities'').\6\
---------------------------------------------------------------------------
\3\ The UTP Pilot Program is currently scheduled to expire on
the earlier of Commission approval to make such pilot permanent or
January 31, 2011. See Securities Exchange Act Release No. 62857
(September 7, 2010), 75 FR 55837 (September 14, 2010) (SR-NYSEAmex-
2010-89) (Notice of Filing and Immediate Effectiveness of Proposed
Rule Change to Extend the Pilot Program that Allows Nasdaq Stock
Market Securities to be Traded on the Exchange Pursuant to UTP). See
also Securities Exchange Act Release No. 62479 (July 9, 2010), 75 FR
41264 (July 15, 2010) (SR-NYSEAmex-2010-31) (Notice of Filing of
Amendment Nos. 2 and 3, and Order Granting Accelerated Approval to a
Proposed Rule Change, as Modified by Amendment Nos. 1, 2, and 3
Thereto, To Adopt as a Pilot Program a New Rule Series for the
Trading of Securities Listed on the Nasdaq Stock Market Pursuant to
Unlisted Trading Privileges) (``UTP Pilot Program Approval Order'').
\4\ See Securities Exchange Act Release No. 58863 (October 27,
2008), 73 FR 65417 (November 3, 2008) (Notice of Filing and
Immediate Effectiveness of Amendment No. 20 to the UTP Plan). The
Exchange's predecessor, the American Stock Exchange LLC, joined the
UTP Plan in 2001. See Securities Exchange Act Release No. 55647
(April 19, 2007), 72 FR 20891 (April 26, 2007) (S7-24-89). In March
2009, the Exchange changed its name to NYSE Amex LLC. See Securities
Exchange Act Release No. 59575 (March 13, 2009), 74 FR 11803 (March
19, 2009) (SR-NYSEALTR-2009-24).
\5\ 15 U.S.C. 78l.
\6\ ``Nasdaq Securities'' is included within the definition of
``security'' as that term is used in the NYSE Amex Equities Rules.
See NYSE Amex Equities Rule 3. In accordance with this definition,
Nasdaq Securities are admitted to dealings on the Exchange on an
``issued,'' ``when issued,'' or ``when distributed'' basis. See NYSE
Amex Equities Rule 501.
---------------------------------------------------------------------------
Rule 501--NYSE Amex Equities (Definitions)
Rule 501--NYSE Amex Equities provides certain defined terms, the
meanings of which are applicable for trading in Nasdaq Securities. All
other defined terms used in Rules 500-525--NYSE Amex Equities have the
meanings assigned to them in the NYSE Amex Equities Rules. Rule
501(e)(2)--NYSE Amex Equities lists specific order types that are not
accepted for trading in Nasdaq Securities and are therefore not
considered ``Orders'' under the UTP Pilot Program. The Exchange
proposes to include ``Market Orders'' and ``Stop Orders'' within Rule
501(e)(2)--NYSE Amex Equities, therefore eliminating submission of such
order types in Nasdaq Securities and likewise excluding them from the
definition of Order under the UTP Pilot Program.
Market and Stop Orders in Nasdaq Securities
Currently, if the Exchange is at the National Best Bid or Offer
(``NBBO''), a Market Order submitted in a Nasdaq Security will execute
against available contra-side liquidity at that best price. If size
remains unfilled, and another market is similarly at the NBBO, the
Market Order will route for execution against the away market's
protected bid or offer, in accordance with Rule 611 of Regulation
NMS.\7\ If size still remains unfilled after routing, the Market Order
will return to the Exchange and execute against the depth of the
Exchange's book, until it is either fully executed or available
liquidity on the Exchange is depleted. The Exchange notes that, as
provided under Rule 501(e)(1)(B)--NYSE Amex Equities, a Stop Order to
buy (sell) becomes a Market Order, and is treated as such for purposes
of execution and routing, when a transaction in the Nasdaq Security
occurs on the Exchange at or above (below) the stop price after the
order is received in to the Exchange's automated order routing system
or is manually represented by a Floor broker in the Crowd.
---------------------------------------------------------------------------
\7\ 17 CFR 242.611. A protected bid or protected offer means a
quotation in an NMS stock that: (i) Is displayed by an automated
trading center; (ii) is disseminated pursuant to an effective
national market system plan; and (iii) is an automated quotation
that is the best bid or best offer of a national securities
exchange, the best bid or best offer of The Nasdaq Stock Market,
Inc., or the best bid or best offer of a national securities
association other than the best bid or best offer of The Nasdaq
Stock Market, Inc. 17 CFR 242.600(b)(57).
---------------------------------------------------------------------------
Nasdaq Securities are thinly traded on the Exchange, which is not
the primary listing market, and account for less than 1% of total
volume in such securities across all markets. This lack of depth in
liquidity combined with the manner in which Market Orders (and Stop
Orders that become Market Orders) in Nasdaq Securities execute, route
and re-execute at the Exchange, creates the potential for multiple
rapid executions on the Exchange at increasingly inferior prices, until
the Market Order (or Stop Order that becomes a Market Order) is fully
executed. Submission of a large Market Order in a Nasdaq Security that
results in several executions on the Exchange at increasingly inferior
prices could potentially trigger individual stock volatility trading
pauses,\8\ raise questions of whether the execution should be busted
under the Exchange's clearly erroneous rule \9\ or create other
[[Page 76761]]
potentially harmful market-wide implications.
---------------------------------------------------------------------------
\8\ See Rule 80C--NYSE Amex Equities (Trading Pauses in
Individual Securities Due to Extraordinary Market Volatility).
\9\ See Rule 128--NYSE Amex Equities (Clearly Erroneous
Executions For NYSE Amex Equities).
---------------------------------------------------------------------------
This is not a concern with respect to trading Exchange-Listed
Securities because of the operation of Liquidity Replenishment Points
(``LRPs'').\10\ LRPs are pre-determined price points that temporarily
convert the automatic Exchange market to an auction market when it is
experiencing a large price movement based on a security's typical
trading characteristics or market conditions over short periods of time
during the trading day. LRPs work to dampen volatility and allow the
Designated Market Maker (``DMM'') assigned to such security to solicit
additional liquidity. However, LRPs are not applicable to trading in
Nasdaq Securities, and are therefore unavailable as a means to impede
or prevent these multiple rapid executions at increasingly inferior
prices. The Exchange believes that the elimination proposed herein is
an appropriate measure to reduce the potential for erroneous executions
and individual stock volatility trading pauses in Nasdaq Securities
until such time as other volatility curbs are in place.
---------------------------------------------------------------------------
\10\ See Rule 1000(a)(iv)--NYSE Amex Equities.
---------------------------------------------------------------------------
The Exchange believes that the elimination of Market and Stop
Orders in Nasdaq Securities would not hinder the ability of members and
member organizations to seek execution of their orders. On average,
only 113 Market Orders and 27 Stop Orders in Nasdaq Securities are
submitted to the Exchange each trading day, accounting for less than
0.0060% and 0.0014%, respectively, of the Exchange's 1,971,439 average
daily orders in Nasdaq Securities. Upon implementation of the proposed
rule change, members and member organizations could continue to utilize
several other existing order types, under Rule 13--NYSE Amex Equities,
for execution of their orders. The Exchange believes that, despite the
relative infrequency in which they are submitted, the potentially
harmful regulatory effects created by Market Orders (and Stop Orders
that become Market Orders) in Nasdaq Securities requires that they be
eliminated on the Exchange.
Accordingly, the Exchange proposes to eliminate the ability to
enter Market and Stop Orders. As proposed, an order in a Nasdaq
Security would be systematically rejected if submitted as a Market or
Stop Order. A member or member organization whose Market or Stop Order
is rejected would be required to re-submit the order to the Exchange,
if it all, as one of several permissible order types provided under
Rule 13--NYSE Amex Equities.
Rule 501(e)(1)(B)--Stop Order
The proposed inclusion of Stop Orders within Rule 501(e)(2)--NYSE
Amex Equities would require that Rule 501(e)(1)(B)--NYSE Amex Equities
be deleted. Rule 501(e)--NYSE Amex Equities modifies the meaning of
certain order types, including Stop Orders, as these terms are defined
under Rule 13--NYSE Amex Equities. Because the Exchange proposes to no
longer accept Stop Orders for trading in Nasdaq Securities, a modified
definition thereof is no longer necessary or appropriate. The Exchange
therefore proposes to delete Rule 501(e)(1)(B)--NYSE Amex Equities in
its entirety.
The Exchange will implement the system changes to no longer accept
Stop and Market Orders on or about December 6, 2010, but in no event,
any later than December 13, 2010, and will notify market participants
in advance when the change will be implemented.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\11\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\12\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, 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.
Specifically, the changes proposed herein would contribute to improving
the quality of executions in Nasdaq Securities on the Exchange and
avoiding executions of Nasdaq Securities at inferior prices.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 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
Because the foregoing rule does not (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 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 \13\ and Rule 19b-4(f)(6)
thereunder.\14\
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires that a self-regulatory organization submit to the
Commission written notice of its 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 filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has satisfied this requirement.
---------------------------------------------------------------------------
The Exchange has requested that the Commission waive the 30-day
operative delay so that the Exchange can eliminate market and stop
orders in Nasdaq-listed securities traded on the Exchange immediately.
The Exchange has represented that the elimination of market and stop
orders in Nasdaq-listed securities should lessen the potential for
multiple rapid executions on the Exchange at inferior prices as a
result of the lack of depth in liquidity for Nasdaq-listed securities
on the Exchange, and should therefore reduce the potential for
erroneous executions and individual stock volatility trading pauses in
Nasdaq-listed securities. In light of the benefits afforded by this
reduced potential, the Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest.\15\
---------------------------------------------------------------------------
\15\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend 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.
[[Page 76762]]
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-NYSEAmex-2010-108 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-NYSEAmex-2010-108. 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
available publicly. All submissions should refer to File Number SR-
NYSEAmex-2010-108 and should be submitted on or before December 30,
2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
---------------------------------------------------------------------------
\16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-30883 Filed 12-8-10; 8:45 am]
BILLING CODE 8011-01-P