[Federal Register Volume 75, Number 238 (Monday, December 13, 2010)]
[Notices]
[Pages 77687-77689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-31200]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63455; File No. SR-NYSE-2010-76]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC
Extending the Operative Date of NYSE Rule 92(c)(3) From December 31,
2010 to August 1, 2011
December 7, 2010.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on November 29, 2010, New York Stock Exchange LLC (``NYSE''
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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to extend the operative date of NYSE Rule
92(c)(3) from December 31, 2010 to August 1, 2011. The text of the
proposed rule change is available at the Exchange, the Commission's
Public Reference Room, on the Commission's Web site at http://www.sec.gov 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to extend the delayed operative date of
NYSE Rule 92(c)(3) from December 31, 2010 to August 1, 2011. The
Exchange believes that this extension will provide the time necessary
for the Exchange and the Financial Industry Regulatory Authority, Inc.
(``FINRA'') to harmonize their respective rules concerning customer
order protection to achieve a standardized industry practice.
Background
On July 5, 2007, the Commission approved amendments to NYSE Rule 92
to permit riskless principal trading at the Exchange.\4\ These
amendments were filed in part to begin the harmonization process
between Rule 92 and FINRA's Manning Rule.\5\ In connection with those
amendments, the Exchange implemented for an operative date of January
16, 2008, NYSE Rule 92(c)(3), which permits Exchange member
organizations to submit riskless principal orders to the Exchange, but
requires them to submit to a designated Exchange database a report of
the execution of the facilitated order. That rule also requires members
to submit to that same database sufficient information to provide an
electronic link of the execution of the facilitated order to all of the
underlying orders.
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\4\ See Securities Exchange Act Release No. 56017 (July 5,
2007), 72 FR 38110 (July 12, 2007) (SR-NYSE-2007-21).
\5\ See NASD Rule 2111 and IM-2110-2.
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For purposes of NYSE Rule 92(c)(3), the Exchange informed member
organizations that when executing riskless principal transactions,
firms must submit order execution reports to the Exchange's Front End
Systemic Capture (``FESC'') database linking the execution of the
riskless principal order on the Exchange to the specific underlying
orders. The information provided must be sufficient for both member
firms and the Exchange to reconstruct in a time-sequenced manner all
orders, including allocations to the underlying orders, with respect to
which a member organization is claiming the riskless principal
exception.
Because the rule change required both the Exchange and member
organizations to make certain changes to their trading and order
management systems, the NYSE filed to delay to May 14, 2008 the
operative date of the NYSE Rule 92(c)(3)
[[Page 77688]]
requirements, including submitting end-of-day allocation reports for
riskless principal transactions and using the riskless principal
account type indicator.\6\ The Exchange filed for additional extensions
of the operative date of Rule 92(c)(3), the most recent of which was an
extension to December 31, 2010.\7\
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\6\ See Securities Exchange Act Release No. 56968 (Dec. 14,
2007), 72 FR 72432 (Dec. 20, 2007) (SR-NYSE-2007-114).
\7\ See Securities Exchange Act Release Nos. 57682 (Apr. 17,
2008), 73 FR 22193 (Apr. 24, 2008) (SR-NYSE-2008-29); 59621 (Mar.
23, 2009), 74 FR 14179 (Mar. 30, 2009) (SR-NYSE-2009-30); 60396
(July 30, 2009), 74 FR 39126 (Aug. 5, 2009) (SR-NYSE-2009-73); 61251
(Dec. 29, 2009), 75 FR 482 (Jan. 5, 2010) (SR-NYSE-2009-129); and
62541 (July 21, 2010), 75 FR 44042 (July 27, 2010) (SR-NYSE-2010-
52).
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Request for Extension \8\
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\8\ NYSE Amex LLC has filed a companion rule filing to conform
its Equities Rules to the changes proposed in this filing. See SR-
NYSEAmex-2009-111, formally submitted November 29, 2010.
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FINRA and the Exchange have been working diligently on fully
harmonizing their respective rules, including reviewing the
possibilities for a uniform reporting standard for riskless principal
transactions. However, because of the complexity of the existing
customer order protection rules, including the need for input from
industry participants as well as Commission approval, the Exchange and
FINRA will not have harmonized their respective customer order
protection rules by the current December 31, 2010 date for the
implementation of the FESC riskless principal reporting.
The Exchange notes that it has agreed with FINRA to pursue efforts
to harmonize customer order protection rules. On December 10, 2009,
FINRA filed with the Commission its rule proposal to adopt a new
industry standard for customer order protection as proposed FINRA Rule
5320.\9\ That proposed filing is based on the draft rule text that
FINRA and NYSE Regulation each circulated to their respective member
participants and includes copies of the comment letters that FINRA and
NYSE Regulation received on the rule proposal. The Exchange intends to
adopt a new customer order protection rule that is substantially
identical to proposed FINRA Rule 5320.
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\9\ See Securities Exchange Act Release No. 61168 (Dec. 15,
2009), 74 FR 68084 (Dec. 22, 2009) (SR-FINRA-2009-90).
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FINRA has filed to extend the time for Commission action on its
rule filing to adopt proposed FINRA Rule 5320 to December 3, 2010. As
proposed by FINRA, however, its proposed new rule will not be effective
upon approval. Rather, the rule filing will become effective at a later
date, not yet known, in order to provide time for FINRA, NYSE, and
market participants to implement programming changes associated with
the proposed new rule.
The Exchange continues to believe that pending full harmonization
of the respective customer order protection rules, it would be
premature to require firms to meet the current Rule 92(c)(3) FESC
reporting requirements.\10\ Indeed, having differing reporting
standards for riskless principal orders would be inconsistent with the
overall goal of the harmonization process.
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\10\ The Exchange notes that it would also need to make
technological changes to implement the proposed FESC reporting
solution for Rule 92(c)(3).
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Accordingly, to provide the Exchange and FINRA the time necessary
to obtain Commission approval for and implement a harmonized rule set
that would apply across their respective marketplaces, including a
harmonized approach to riskless principal trade reporting, the Exchange
is proposing to delay the operative date for NYSE Rule 92(c)(3) from
December 31, 2010 to August 1, 2011.
Pending the harmonization of the two rules, the Exchange will
continue to require that, as of the date each member organization
implements riskless principal routing, the member organization have in
place systems and controls that allow them to easily match and tie
riskless principal execution on the Exchange to the underlying orders
and that they be able to provide this information to the Exchange upon
request. To make clear that this requirement continues, the Exchange
proposes to amend supplementary material .95 to Rule 92 to specifically
provide that the Rule 92(c)(3) reporting requirements are suspended
until August 1, 2011 and that member organizations are required to have
in place such systems and controls relating to their riskless principal
executions on the Exchange. Moreover, the Exchange will coordinate with
FINRA to examine for compliance with the rule requirements for those
firms that engage in riskless principal trading under Rule 92(c).
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (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. The Exchange
believes the proposed extension provides the Exchange and FINRA the
time necessary to develop a harmonized rule concerning customer order
protection that will enable member organizations to participate in the
national market system without unnecessary impediments.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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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 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 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, it
has become effective pursuant to Section 19(b)(3)(A) of the Act \13\
and Rule 19b-4(f)(6) thereunder.\14\
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\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 the self-regulatory organization to 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 date of filing of
the proposed rule change, or such shorter time as designated by the
Commission. The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the 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.
[[Page 77689]]
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-NYSE-2010-76 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-NYSE-2010-76. 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 on official business days
between the hours of 10 a.m. and 3 p.m. Copies of such 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-
NYSE-2010-76 and should be submitted on or before January 3, 2011
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-31200 Filed 12-10-10; 8:45 am]
BILLING CODE 8011-01-P