[Federal Register Volume 75, Number 244 (Tuesday, December 21, 2010)]
[Notices]
[Pages 80088-80090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-31931]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63545; File No. SR-NYSE-2010-82]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Extend for 12 Months the Pilot Program Permitting the Exchange's
Ownership Interest in BIDS Holdings L.P. (BIDS) and the Affiliation of
BIDS With the New York Block Exchange LLC
December 14, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'')F \1\F and Rule 19b-4 thereunder,\2\ notice is hereby
given that, on December 9, 2010, the 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
Exchange. 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\ 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 for an additional 12 months the
January 22, 2011 expiration date of the pilot program that provides an
exception to NYSE Rule 2B by permitting the Exchange's equity ownership
interest in BIDS Holdings L.P. (``BIDS''), which is the parent company
of a member of the Exchange, and BIDS's affiliation with the New York
Block Exchange LLC, an affiliate of the Exchange. There is no proposed
rule text.
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
On January 22, 2009, the Commission approved the governance
structure proposed by the Exchange with respect to the New York Block
Exchange (``NYBX''), a new electronic trading facility of the Exchange
for NYSE-listed securities that was established by means of a joint
venture between the Exchange and BIDS.\3\ The governance structure that
was approved is reflected in the Limited Liability Company Agreement of
New York Block Exchange LLC (the ``Company''), the entity that owns and
operates NYBX. Under the governance structure approved by the
Commission, the Exchange and BIDS each own a 50% economic interest in
the Company. In
[[Page 80089]]
addition, the Exchange, through its wholly-owned subsidiary NYSE
Market, Inc., owns less than 10% of the aggregate limited partnership
interest in BIDS. BIDS is the parent company of BIDS Trading, L.P.
(``BIDS Trading''), which became a member of the Exchange in connection
with the establishment of NYBX.
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\3\ See Securities Exchange Act Release No. 59281 (January 22,
2009), 74 FR 5014 (January 28, 2009) (order approving SR-NYSE-2008-
120) (``Approval Order'').
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The foregoing ownership arrangements would violate NYSE Rule 2B
without an exception from the Commission.\4\ First, the Exchange's
indirect ownership interest in BIDS Trading violates the prohibition in
Rule 2B against the Exchange maintaining an ownership interest in a
member organization. Second, BIDS Trading is an affiliate of an
affiliate of the Exchange,\5\ which violates the prohibition in Rule 2B
against a member of the Exchange having such status. Consequently, in
the Approval Order, the Commission permitted an exception to these two
potential violations of NYSE Rule 2B, subject to a number of
limitations and conditions. One of the conditions for Commission
approval was that the proposed exception from NYSE Rule 2B to permit
NYSE's indirect ownership/interest in BIDS Trading and BIDS Trading's
affiliation with the Company (which is an affiliate of NYSE) would be
for a pilot period of 12 months.\6\
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\4\ NYSE Rule 2B provides, in relevant part, that: ``[w]ithout
prior SEC approval, the Exchange or any entity with which it is
affiliated shall not, directly or indirectly, acquire or maintain an
ownership interest in a member organization. In addition, a member
organization shall not be or become an affiliate of the Exchange, or
an affiliate of any affiliate of the Exchange.* * * The term
affiliate shall have the meaning specified in Rule 12b-2 under the
Act.''
\5\ Specifically, the Company is an affiliate of the Exchange,
and BIDS Trading is an affiliate of the Company based on their
common control by BIDS. The affiliation in each case is the result
of the 50% ownership interest in the Company by each of the Exchange
and BIDS.
\6\ See Approval Order, 74 FR at 5018.
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In discussing the pilot basis of the exception to NYSE Rule 2B, the
Approval Order noted that the pilot period ``will provide NYSE and the
Commission an opportunity to assess whether there might be any adverse
consequences of the exception and whether a permanent exception is
warranted.'' \7\ The original 12-month pilot period expired on January
22, 2010 and was extended for an additional 12 months to January 22,
2011 by a rule filing made by the Exchange on January 11, 2010 and
noticed in a release by the Commission dated January 22, 2010.\8\ While
the Exchange believes that the experience to date operating under the
exception to Rule 2B fully justifies making the exception permanent,
the Exchange now seeks to extend the ending date for the pilot program
for another 12 months to January 22, 2012 to allow additional time, if
necessary, for the Commission to obtain and review the information it
needs in order to make its determination regarding any adverse
consequences of the exception and whether a permanent exception is
warranted. During the proposed extension of the pilot program period,
the Exchange's current indirect ownership interest in BIDS Trading \9\
and BIDS Trading's affiliation with the Company would continue to be
permitted.
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\7\ Id. at 5019.
\8\ See Securities Exchange Act Release No. 61409 (January 22,
2010), 75 FR 4889 (January 29, 2010) (File No. SR-NYSE-2010-04).
\9\ Another condition for the exception to NYSE Rule 2B
specified in the Approval Order was that the Exchange's equity
interest in BIDS must remain less than 9%, absent prior Commission
approval of any increase. See id. at 5018. Subsequently, the
Commission approved a proposal by the Exchange to slightly increase
the ceiling on its equity ownership in BIDS to less than 10%, and
that will be the applicable limitation during the extension of the
pilot period. See Securities Exchange Act Release No. 61257
(December 30, 2009), 75 FR 500 (January 5, 2010) (order approving
SR-NYSE-2009-116).
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If the Commission should determine prior to the end of the extended
pilot period that a permanent exception to NYSE Rule 2B is warranted,
the Exchange would have the option of submitting a proposed rule change
to accomplish this and simultaneously terminate the pilot program.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) \10\ of the Act,\11\ in general, and furthers the
objectives of Section 6(b)(1) \12\ of the Act, which requires a
national securities exchange to be so organized and have the capacity
to carry out the purposes of the Act and to comply, and to enforce
compliance by its members and persons associated with its members, with
the provisions of the Act. The Exchange further believes that the
proposed rule change is also consistent with, and furthers the
objectives of, Section 6(b)(5) \13\ of the Act, in that 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, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78.
\12\ 15 U.S.C. 78f(b)(1).
\13\ 15 U.S.C. 78f(b)(5).
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In the Approval Order, the Commission determined that the proposed
exception from NYSE Rule 2B to permit NYSE's indirect ownership
interest in BIDS Trading and BIDS Trading's affiliation with the
Company was consistent with the Act, including Section 6(b)(5)
thereof.\14\ As the basis for its determination, the Commission cited
the specific limitations and conditions listed in the Approval Order to
which its approval of the exception to NYSE Rule 2B was subject,\15\
stating: ``These conditions appear reasonably designed to mitigate
concerns about potential conflicts of interest and unfair competitive
advantage. * * * These conditions appear reasonably designed to promote
robust and independent regulation of BIDS. * * * The Commission
believes that, taken together, these conditions are reasonably designed
to mitigate potential conflicts between the Exchange's commercial
interest in BIDS and its regulatory responsibilities with respect to
BIDS.'' \16\ Because these same limitations and conditions will
continue to be applicable during the additional extension of the pilot
period, other than the ending date of the pilot period and the
aforementioned small increase in the ceiling on the Exchange's equity
interest in BIDS, the Exchange believes that the exception from NYSE
Rule 2B described above will continue to be consistent with the Act
during that extension.
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\14\ See Approval Order, 74 FR at 5018-5019.
\15\ Id. at 5018.
\16\ Id. at 5019.
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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
The foregoing proposal has become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder because it does
not: (i) Significantly affect the protection of
[[Page 80090]]
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.\17\
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\17\ In addition, Rule 19b-4(f)(6) requires the Exchange to give
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 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.
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-2010-82 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-2010-82. 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 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-2010-82 and should be
submitted on or before January 11, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority. \18\
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\18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-31931 Filed 12-20-10; 8:45 am]
BILLING CODE 8011-01-P