[Federal Register Volume 75, Number 74 (Monday, April 19, 2010)]
[Notices]
[Pages 20401-20413]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-8859]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61890; File No. SR-NYSEAmex-2010-31]
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of
Proposed Rule Change, and Amendment No. 1 Thereto, To Adopt, as a Pilot
Program, a New NYSE Amex Equities Rule Series for the Trading of
Securities Listed on the Nasdaq Stock Market Pursuant to a Grant of
Unlisted Trading Privileges, and Amending Existing NYSE Amex Equities
Rules as Needed To Accommodate the Trading of Nasdaq-Listed Securities
on the Exchange
April 12, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 26, 2010, NYSE Amex LLC (``Exchange'' or ``NYSE Amex'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by Exchange. Subsequently, on April 6, 2010,
NYSE Amex filed Amendment No. 1 to the proposed rule change. The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, 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 (i) adopt, as a pilot program, a new NYSE
Amex Equities Rule Series (Rules 500-525) for the trading of securities
listed on the Nasdaq Stock Market (``Nasdaq'') pursuant to a grant of
unlisted trading privileges and (ii) amend existing NYSE Amex Equities
Rules as needed to accommodate the trading of Nasdaq-listed securities
on the Exchange. The text of the proposed rule change is available at
the Exchange, 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to (i) adopt, as a pilot program, a new NYSE
Amex Equities Rule Series (Rules 500-525) for the trading of Nasdaq-
listed securities pursuant to a grant of unlisted trading privileges
and (ii) amend existing NYSE Amex Equities Rules as needed to
accommodate the trading of Nasdaq-listed securities on the Exchange.
Overview
As described in greater detail below, the Exchange proposes to
adopt, as a pilot program, a new NYSE Amex Equities Rule Series to
specifically govern the trading of any security listed on the 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''),\3\ 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
Act,\4\ (collectively, ``Nasdaq Securities'').\5\ The Exchange
[[Page 20402]]
also proposes to amend existing NYSE Amex Equities Rules as needed to
accommodate the trading of Nasdaq Securities on the Exchange. The
Exchange proposes that this pilot program commence on the date the
proposed Rules are approved by the Commission \6\ and that it continue
until the earlier of the Commission's approval to make such pilot
program permanent or September 30, 2010.\7\
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\3\ 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 2091 (April 27, 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). See also proposed Rule 501--NYSE
Amex Equities.
\4\ 15 U.S.C. 78l.
\5\ As proposed, Nasdaq Securities shall be included within the
definition of ``security'' as that term is defined in Rule 3--NYSE
Amex Equities and as used in the NYSE Amex Equities Rules. In
accordance with this definition, Nasdaq Securities shall be admitted
to dealings on the Exchange on an ``issued'', ``when issued'', or
``when distributed'' basis. See proposed Rule 501--NYSE Amex
Equities.
\6\ This sentence was revised per the e-mail from Jason Harmon,
Consultant, NYSE Regulation, Inc., to Christopher Chow, Special
Counsel, Commission (``April 9 e-mail''), dated April 9, 2010.
\7\ See proposed Rule 500--NYSE Amex Equities. This is the same
date that New York Stock Exchange LLC's (``NYSE'') New Market Model
pilot program expires. Because several elements of the Exchange's
proposal to trade Nasdaq Securities rely on the NYSE's New Market
Model (``NMM''), the Exchange proposes to extend the duration of
this pilot program as needed to track the NYSE's NMM pilot program
and would file for permanent approval at the same time or after the
NYSE files for permanent approval of the NMM.
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In summary, the Exchange proposes to trade Nasdaq Securities on the
same systems and facilities it uses to trade its listed securities in
accordance with the same trading rules, subject to several key
differences:
There will not be an opening or closing auction for Nasdaq
Securities traded on the Exchange. Trading in Nasdaq Securities will
open on a quote at 9:30 a.m. and will close at 4 p.m., or immediately
thereafter under certain circumstances, using the last sale on the
Exchange as the Closing Price (defined below).
``Good `til Canceled'' (``GTC'') Orders and ``Stop''
Orders for Nasdaq Securities will be modified to provide that any GTC
or Stop Orders that are unexecuted at the close of trading will be
treated as Day Orders and canceled. In addition, the Exchange will not
accept limit or market ``At the Close'' (``MOC/LOC''), ``At the
Opening'' (``OPG''), ``Closing Offset'' (``CO'') or ``Good `til Cross''
(``GTX'') Orders for the trading of Nasdaq Securities. All other order
types will be accepted.
Each Nasdaq Security will be assigned one Designated
Market Maker (``DMM'') Unit, though the allocation process will be
streamlined to follow the approach used by the Exchange for
Supplemental Liquidity Providers (``SLPs'') (see Rule 107B--NYSE Amex
Equities).\8\
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\8\ The Exchange recently adopted Rule 107B--NYSE Amex Equities
(Supplemental Liquidity Provider) to establish a new class of NYSE
Amex Equities market participants. See Securities Exchange Act
Release No. 61308 (January 7, 2010), 75 FR 2573 (January 15, 2010)
(SR-NYSEAmex-2009-98).
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For those Nasdaq Securities in which they are registered,
DMM Units will be responsible for the affirmative obligation of
maintaining a fair and orderly market in accordance with Exchange
rules, subject to an enhanced quoting requirement and a phased-in
implementation of Depth Guidelines to enable the Exchange to collect
trading data adequate to calculate such guidelines.
Nasdaq Securities will trade using different Liquidity
Replenishment Point (``LRP'') parameters.
Trading in Nasdaq Securities will be subject to rules that
are substantially similar to FINRA's ``Manning Rule'', rather than Rule
92--NYSE Amex Equities.
The Exchange's audit trail rules, including Rules 123--
and 132B--NYSE Amex Equities, will apply to the trading of Nasdaq
Securities on the Exchange, except that, those members and member
organizations that are also FINRA members and subject to FINRA's Rule
7400 Series (``Order Audit Trail System'' or ``OATS'') will be exempt
from Rules 123-- and 132B--NYSE Amex Equities.
NYSE Amex will trade Nasdaq-listed equities and any other Nasdaq-
listed security that trades like an equity security (e.g., rights,
warrants), and will also trade the Invesco PowerShares QQQTM
Exchange Traded Fund.\9\
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\9\ Although the Exchange may in the future seek to trade other
Nasdaq Securities that are exchange traded funds or similar products
as part of its pilot program, the Exchange's initial proposal is to
limit the term ``Exchange Traded Fund'' to mean only the Invesco
PowerShares QQQTM. See proposed Rule 501--NYSE Amex
Equities. For the purposes of trading Nasdaq Securities all
references to an ``Exchange Traded Fund'' or ``ETF'' in the NYSE
Amex Equities Rules shall refer to the definition contained in
proposed Rule 501--NYSE Amex Equities.
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The Exchange intends to commence implementation of the trading of
Nasdaq Securities using a phased-in approach and to expand the program
to eventually include all Nasdaq Securities.
Proposed NYSE Amex Equities Rule 500 Series \10\
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\10\ As proposed, the NYSE Amex Equities Rule 500 Series is
consecutively numbered from 500 to 525. However, some rules are
expressly reserved and are not referenced in the filing herein.
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The Exchange proposes to adopt a new series of NYSE Amex Equities
Rules (Rules 500 to 525) to specifically govern the trading of Nasdaq
Securities on the Exchange.
1. Proposed Rule 500--NYSE Amex Equities (Applicability)
The Exchange will trade Nasdaq Securities as it currently trades
its listed securities, subject to some distinctions. Thus, the Exchange
proposes to adopt Rule 500--NYSE Amex Equities to provide that the
trading of Nasdaq Securities on the Exchange shall be governed by the
Rule 500 Series and all other NYSE Amex Equities Rules, except to the
extent they conflict with the Rule 500 Series, in which case the Rule
500 series will control. In addition, proposed Rule 500 provides that
the Exchange's Disciplinary Rules 475, 476, 476A and 477 will also
apply to the trading of Nasdaq Securities on the Exchange.
2. Proposed Rule 501--NYSE Amex Equities (Definitions)
Although Nasdaq Securities will trade primarily in accord with
existing NYSE Amex Equities Rules, the Exchange proposes to adopt Rule
501--NYSE Amex Equities to define key terms for the trading of Nasdaq
Securities on the Exchange. All other terms will have the meanings
assigned to them in other NYSE Amex Equities Rules. The definitions are
discussed in greater detail in this filing where relevant.
3. Proposed Rule 502--NYSE Amex Equities (Hours of Business)
Pursuant to proposed Rule 502--NYSE Amex Equities, the Exchange
proposes to trade Nasdaq Securities during regular trading hours in
accordance with Rule 51--NYSE Amex Equities. Regular trading hours are
usually from 9:30 a.m. to 4 p.m., or during such other hours as may be
specified by Exchange rules or as otherwise determined by the Board of
Directors of the Exchange. The Exchange also proposes to permit Nasdaq
Securities to trade in the Exchange's ``Off-Hours Trading Facility''
under Rules 900--907--NYSE Amex Equities.\11\ As described more fully
below, however, due to modifications to the opening and closing for
Nasdaq Securities, members and member organizations will not be
permitted to make any bid, offer or transaction for Nasdaq Securities
on Exchange systems, or route an order for a Nasdaq Security to another
market center from Exchange systems, before 9:30 a.m. or after the
[[Page 20403]]
close of the Off-Hours Trading session (e.g. Crossing Session II).
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\11\ Currently, in accordance with NYSE Rule 1500, members and
member organizations of NYSE (which includes substantially all NYSE
Amex Equities members and member organizations) are also permitted
to enter orders for Nasdaq-listed securities on a UTP basis into the
NYSE MatchPoint facility (``NYSE MatchPoint''), which has an After-
Hours matching session at 4:45 p.m. However, NYSE MatchPoint is not
a system or facility of the Exchange, and thus the proposed NYSE
Amex Equities Rule 500 Series, and Rule 502--NYSE Amex Equities in
particular, would not apply to trading of Nasdaq-listed securities
conducted on NYSE MatchPoint.
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4. Proposed Rule 504--NYSE Amex Equities (Nasdaq Security Assignment)
As described in this filing, the Exchange proposes to trade Nasdaq
Securities within the existing DMM and SLP framework used to trade its
listed securities. The Exchange will create a ``Nasdaq Securities
Liaison Committee'', consisting of NYSE Euronext employees of the
Operations and U.S. Markets Divisions (a representative of NYSE
Regulation Inc. (``NYSER'') would act as an ad hoc member of the
Committee as needed), that will be responsible for reviewing and
admitting Nasdaq Securities for trading on the Exchange. At the time
Nasdaq Securities are admitted to dealings on the Exchange, the Nasdaq
Securities Liaison Committee will assign each such security to a
registered and qualified DMM Unit and registered and qualified SLPs in
accordance with procedures substantially similar to the Exchange's
current SLP procedures in Rule 107B--NYSE Amex Equities. See proposed
Rule 501--NYSE Amex Equities. The Nasdaq Securities Liaison Committee
may also, in its discretion, reassign one or more Nasdaq Securities to
a different DMM Unit or to a different SLP or SLPs.
a. Assignment to DMM Units
Existing NYSE Amex Equities DMM Units will be automatically
eligible for the assignment of Nasdaq Securities, so long as they
qualify in accordance with Rules 98-- and 103B(II)--NYSE Amex Equities,
and proposed Rule 504(b)--NYSE Amex Equities.\12\ For the purposes of
trading Nasdaq Securities, the Exchange proposes to amend the quoting
requirements under Rule 103B(II)--NYSE Amex Equities such that a DMM
Unit shall be required to maintain a quote at the National Best Bid or
Offer in each assigned Nasdaq Security an average of at least 10% of
the time, or more, during the regular business hours of the Exchange
for each calendar month. This quoting requirement is also part of a DMM
Unit's affirmative obligations under proposed Rule 509--NYSE Amex
Equities.
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\12\ The Exchange proposes to amend Rule 98(b)(2) (definition of
``DMM unit'') and (b)(15) (definition of ``Related products'')--NYSE
Amex Equities to accommodate the trading of Nasdaq Securities on the
Exchange.
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The Exchange's Nasdaq Securities Liaison Committee will assign
Nasdaq Securities to DMM Units for trading on the Exchange. No more
than one DMM Unit will be assigned to any Nasdaq Security and a member
organization will not be permitted to be registered as both the DMM
Unit and an SLP for the same Nasdaq Security.
b. Assignment of the Invesco PowerShares QQQ TM
The Exchange intends to trade the Invesco PowerShares
QQQTM Exchange Traded Fund (the ``QQQs'') and has proposed a
set of special requirements governing the assignment of the QQQs and
its component securities.\13\
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\13\ See proposed Rule 501(b)--NYSE Amex Equities, which defines
``Exchange Traded Fund'' as ``the Invesco PowerShares
QQQTM.''
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Under proposed Rule 504--NYSE Amex Equities, a DMM Unit may be
registered in both the QQQs as well as a component security or
securities of the QQQs provided that, at the time of assignment, (i) no
single component in which the DMM Unit is registered exceeds 10% of the
index or portfolio underlying the QQQs, and (ii) all components in
which the DMM Unit is registered do not in the aggregate exceed 20% of
the index or portfolio underlying the QQQs. Subsequently, if during any
given month a single component security or group of securities in which
the DMM Unit is registered exceeds these concentration measures on an
average basis, the Nasdaq Liaison Committee will reassign either the
QQQs or the component security or securities to another DMM Unit as
needed to achieve compliance with the concentration measures.
The Exchange will calculate and monitor the components and
percentage of the QQQs on a monthly basis in accordance with the
proposed concentration measures and report these calculations to the
Nasdaq Liaison Committee. In addition, under proposed Rule 504--NYSE
Amex Equities the DMM Unit registered in the QQQs will have an
independent obligation to calculate, monitor and report to the Exchange
on a monthly basis the component security or securities in which it is
registered, the average percentage of the underlying index or portfolio
of each individual component during the month, and the total average
aggregate percentage of the underlying index or portfolio of all
components during the month. If these levels are exceeded the DMM Unit
will be required to report this to the Exchange as soon as possible.
The Exchange recognizes that integrated market-making and side-by-
side trading in related securities have sometimes raised concerns about
manipulation or improper coordination of trading between the related
securities. As explained more fully below, the Exchange believes,
however, that the structures proposed for assigning and trading the
QQQs and a subset of its component securities within a single DMM Unit
will reduce or substantially eliminate those concerns, and are
therefore consistent with the requirements of the Act and Commission
policy.
The Commission has extensively addressed the issue of integrated
market making and side-by-side trading in the context of trading index
ETFs and related options. In that guidance, the Commission has
repeatedly stated that one of the touchstones is whether an ETF is
``broad-based'' and therefore poses a low risk of being susceptible to
manipulation.\14\ In making this assessment, the Commission has weighed
whether the underlying component securities are sufficiently liquid and
well-capitalized such that they are not individually susceptible to
manipulation, together with whether the composition of the ETF as a
whole is such that it is not unduly concentrated in a single security
or a small number of securities. When an ETF meets both criteria, and
therefore can be considered ``broad-based'', the Commission has
explicitly permitted integrated market making and side-by-side trading
in both the ETF and related options, with no requirement for
information barriers or physical or organizational separation. See,
e.g., CBOE Rule 54.7(d).
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\14\ See Securities Exchange Act Release No. 46213 (July 16,
2002), 67 FR 48232 (July 23, 2002) (SR-Amex-2002-21) (order
approving integrated market making of broad index-based ETFs and
related options). See also Securities Exchange Act Release Nos.
56633 (October 9, 2007), 72 FR 58696 (October 16, 2007) (SR-ISE-
2007-60) (order approving generic listing standards for ETFs based
on both U.S. and international indices, noting they are
``sufficiently broad-based in scope to minimize potential
manipulation.''); 55621 (April 12, 2007), 72 FR 19571 (April 18,
2007) (SR-NYSEArca-2006-86) (same); 54739 (November 9, 2006), 71 FR
66993 (November 17, 2006) (SR-Amex-2006-78) (same); 57365 (February
21, 2008), 73 FR 10839 (February 28, 2008) (SR-CBOE-2007-109) (order
approving generic listing standards for ETFs based on international
indices, noting they are ``sufficiently broad-based in scope to
minimize potential manipulation.''); 56049 (July 11, 2007), 72 FR
39121 (July 17, 2007) (SR-Phlx-2007-20) (same); 55113 (January 17,
2007), 72 FR 3179 (January 24, 2007) (SR-NYSE-2006-101) (same); and
55269 (February 9, 2007), 72 FR 7490 (February 15, 2007) (SR-Nasdaq-
2006-50) (same). The QQQs meet these criteria.
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The Exchange believes that the logic inherent in permitting
integrated market making in broad-based ETFs and related options should
also apply to permit integrated market making in a broad-based ETF such
as the QQQs and a limited number of its component securities. The
Exchange notes at the outset that there do not appear to be rules on
other exchanges expressly
[[Page 20404]]
addressing the latter type of integrated market making, nor has the
Exchange identified guidance from the Commission specifically
addressing the subject. Nevertheless, the Exchange believes that the
extant Commission guidance on integrated market-making and side-by-side
trading in broad-based ETFs and related options is highly relevant and
informative to the current proposal, and is consistent with the
Exchange's proposal.
Among other things, the Exchange's current proposal is limited to a
single broad-based ETF, the QQQs, which meets the composition and
concentration measures previously approved by the Commission (see
footnote 14 herein) to be classified as a broad-based ETF, with
minimal, if any, potential to be manipulated.
Because the potential for manipulation of the QQQs is so minimal,
the risk presented by limited integrated market making is also
extremely low. In this regard, the Exchange notes that the QQQs is one
of the most actively traded securities in the world. It is based on a
group of highly liquid securities (the top 100 Nasdaq-listed
securities, ex-financial stocks); with the exception of Apple, no
component represents more than 10% of the index; the ETF is itself very
liquid (with 3-month average volume in excess of 90 million shares per
day); and it is actively traded in multiple markets around the world.
Given all of this, the Exchange believes that it would be
inherently ineffective to attempt to either manipulate the price of a
component or front-run pending nonpublic trading activity in a
component in order to effect an advantageous trade in the QQQs. First,
because of the inherent leverage of the QQQs compared to its
components, such a manipulation of a component would require a
disproportionately large amount of capital in order to be able to both
impact the price of the QQQs and simultaneously override potential
concurrent and counter-cyclical price movements in the other 99
components. The amount of capital required to successfully accomplish
such a manipulation would seemingly be larger than the potential profit
potential. Similarly, the potential for successful front-running would
require that the impact of the pending component trading activity not
be neutralized by price changes in the other components. For the same
reasons, it would be difficult to effectively front-run information
about a component security by trading in the QQQs. However, as noted
above, in order to mitigate against the theoretical possibility of
successful manipulation or front-running, the Exchange would only
permit the QQQs DMM to also be the DMM in a limited number of component
stocks. See proposed Rule 504--NYSE Amex Equities.
The existence of a manual market on the Trading Floor does not
materially alter this fundamental risk calculus. First, there will be
few, if any, circumstances in which a DMM in a Nasdaq Security will be
in possession of material nonpublic order information (i.e., a pending
block transaction) that could be used improperly. These situations are
typically limited to circumstances when the market is slow because of a
pending manual trade and/or when a Floor broker communicates that he or
she is seeking to execute a block sized order. In listed securities
today, a substantial percentage of manual trades occur in connection
with the opening and closing auction or when a liquidity replenishment
point (``LRP'') has been reached. However, there will not be an opening
or closing auction in Nasdaq Securities and the LRPs will be
substantially widened. Thus the number of manual trades is anticipated
to be negligible. And, even when a manual transaction in a component
security does occur intraday (e.g., in response to an LRP or
publication of a gap quote), it is highly unlikely that a DMM Unit
could profitably use this information to effect an advantageous trade
in the QQQs for the reasons described above.
Second, the Exchange will not be the listing market in Nasdaq
Securities and is expected to have limited market share given the
fragmentation of trading in Nasdaq-listed securities in the U.S.
equities markets. Thus any trading that occurs on the Exchange will
generally equalize to trading on other markets, with limited, if any,
ability for the DMM to materially impact the price of a component. In
view of the depth and liquidity of the Nasdaq-100 component securities,
the Exchange does not believe that a block transaction in a component
security of the QQQs would necessarily impact the price of the
component security on a consolidated basis for a meaningful period of
time. More importantly, the Exchange does not believe that a block
transaction on the Exchange in a component security would predictably
impact the price of the QQQs for enough time, if at all, to alter the
risk-reward calculus and incentivize front-running the component block
transaction by trading in the QQQs. Given the high-speed pace of
electronic trading generally, the breadth of markets where the QQQs is
traded, and the average daily trade volume, the Exchange believes it to
be highly unlikely that an individual standing on the Trading Floor
could enter a timely trade in response to knowledge of a pending block
trade in one of the component securities. For the same reasons, it
would also be inherently unprofitable for a DMM to attempt to
manipulate a component in order to effect an advantageous trade in the
QQQs.
In view of these concerns, however, even if unlikely, as described
above the Exchange proposes to adopt concentration requirements for
trading the QQQs to limit the level of nonpublic information regarding
the component securities available to the assigned QQQs DMM Unit.
Together with the market structure considerations outlined above which
mitigate against possible manipulation and front-running, the Exchange
believes that this additional restriction will provide a ``belt-and-
suspenders'' level of protection.
The Exchange also believes that any potential concerns over ``wash
sales'' or inadvertent internal proprietary crosses by the DMM Unit are
sufficiently addressed. First, Exchange DMM algorithmic trading systems
(commonly known as the ``SAPI'') prevent DMM Unit trading interest from
executing against its own quotes or other trading interest on the
Exchange (i.e. an ``internal cross'') and virtually all DMM Unit
trading interest is entered via the SAPI. While a DMM Unit could,
theoretically, enter a proprietary order in one of its assigned
securities other than through the SAPI, which would not be subject to
the systemic internal cross block, that possibility is remote since the
DMM Unit would incur higher fees for such an order and less
advantageous parity treatment in connection with any execution of such
order. Even so, DMM Units are required to have policies and procedures
in place reasonably designed to prevent violations of Exchange rules
and the federal securities laws, including NYSE Amex Disciplinary Rule
476(a)(8), which prohibits ``giving an order for the purchase or sale
of securities the execution of which would involve no change of
beneficial ownership or executing such an order with knowledge of its
character'', as well as violations of the ``wash sale'' prohibition of
Section 9 of the Act. These policies and procedures, including those
governing a firm's risk management trading policies
[[Page 20405]]
and systems, are subject to review and approval by the Exchange.\15\
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\15\ The member firm currently anticipated to be assigned as the
DMM Unit in the QQQs has represented to the Exchange that the firm's
risk management system will reasonably prevent the firm from
effecting any internal proprietary crosses in its assigned
securities.
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In addition, because any firm assigned as the DMM Unit for the QQQs
will have, as part of its broader risk management capability, a unique
ability to view and assess its trading activity across any and all
markets in which it trades the QQQs and any components in which it is
registered on the Exchange,\16\ in accordance with Rule 342--NYSE Amex
Equities the Exchange will require the QQQs DMM to implement adequate
policies and procedures to detect and deter the inappropriate access to
information about pending block trades in a component security,
potential front-running and/or manipulation based on such information,
intentional wash sales, or any other violations of Section 9 of the
Act. The DMM's policies and procedures would also be required to
provide that the DMM firm will conduct surveillance to identify
patterns of trading that are indicative of possible front-running of
block trades, manipulation and/or intentional wash sales, and to take
appropriate steps to investigate and report such trading to the
Exchange. As with all DMM Units, the firm will be subject to periodic
and, if warranted, special examinations by FINRA.
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\16\ Such firm's risk management policies and procedures will
have to meet the requirements of Rule 98--NYSE Amex Equities.
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As a result, the Exchange believes that the requirements governing
the assignment of Nasdaq Securities in proposed Rule 504--NYSE Amex
Equities are sufficient to address any market concerns. The Exchange
also agrees to review proposed Rule 504--NYSE Amex Equities and the
provisions governing the allocation of the QQQs and its component
securities in the event that the Exchange's share of the market for the
Nasdaq Securities it trades exceeds 10% of the consolidated Tape C
aggregate average daily trading volume for these securities.
c. Integration of NYSE Amex Listed Securities and Nasdaq Securities at
Posts on the Trading Floor
The Exchange anticipates that some DMM Units currently registered
on the NYSE will seek to register as DMM Units on the Exchange in order
to trade Nasdaq Securities. Under Exchange Rules, all current NYSE
members and member organizations are deemed members and member
organizations of the Exchange and DMM Units are automatically granted
an NYSE Amex Equities trading license. See Rules 2.10-- and 2.20--NYSE
Amex Equities. Those NYSE DMM Units that wish to trade Nasdaq
Securities and that are not already registered as DMM Units on the
Exchange will need to register as such with the Exchange to ensure
proper tracking and systems configuration. Similarly, individual DMMs
will need to register with the Exchange to confirm that they meet all
applicable registration requirements and to ensure proper tracking and
systems set-up, including ID Track requirements. In addition, NYSE DMM
Units seeking to register as a DMM Unit on the Exchange will also need
to advise FINRA in order to enable FINRA to assess whether such
registration triggers different and/or additional financial and
operational requirements, including but not limited to those pertaining
to net capital.
As described more fully in the section proposing to amend Rule
103B--NYSE Amex Equities, infra, a DMM Unit that is registered to trade
both NYSE and Exchange-listed securities, as well as Nasdaq Securities,
could trade all these securities at the same post. However, such member
organizations will be required to commit sufficient staff for the
trading of NYSE-listed securities separate from that for the trading of
Exchange-listed securities and/or Nasdaq Securities at the same post on
the Trading Floor: individual DMMs and support staff will not be
permitted to trade both NYSE-listed and NYSE Amex-listed securities
and/or Nasdaq Securities at the same time. Intraday moves of individual
DMMs and support staff between panels will be permitted, although DMMs
and staffers will not be permitted to be simultaneously logged-into
both an NYSE panel and an Exchange panel.
Finally, in conjunction with Rule 103B(IX), proposed Rule 504(d)--
NYSE Amex Equities will require that Nasdaq Securities be allocated for
trading only at panels exclusively designated for trading listed and/or
Nasdaq Securities on the Exchange (see infra).
d. Assignment to SLPs
NYSE Amex Equities members and member organizations may apply to be
SLPs in Nasdaq Securities and will be eligible for the assignment of
Nasdaq Securities once they register and qualify as SLPs in accordance
with Rule 107B--NYSE Amex Equities. As with NYSE registered DMMs and
DMM Units, NYSE registered SLPs are automatically deemed member
organizations of NYSE Amex Equities under Rule 2.10--NYSE Amex
Equities. NYSE registered SLPs that wish to trade Nasdaq Securities as
SLPs will need to register with and be approved by the Exchange as SLPs
in accordance with all applicable NYSE Amex Equities Rules.
The Nasdaq Securities Liaison Committee will assign one or more
SLPs to Nasdaq Securities for trading on the Exchange. A member
organization cannot be both the DMM Unit and an SLP for the same Nasdaq
Security. Because SLPs do not have a presence on the Trading Floor and
do not have access to the information there, however, the Exchange does
not propose the same limitations on the assignment of ETFs and
component securities to SLPs as it does for DMM Units.
Finally, in the event an SLP withdraws from its status as an SLP,
Nasdaq Securities will be reassigned to a different SLP(s) in
accordance with Rule 107B--NYSE Amex Equities.
5. Proposed Rule 506--NYSE Amex Equities (Units of Trading; Bids and
Offers; Dissemination of Quotations; Priority)
Nasdaq Securities will be traded almost exactly as the Exchange's
listed securities. Proposed Rule 506--NYSE Amex Equities prescribes the
basic unit of trading for Nasdaq Securities, and addresses some
requirements for bids and offers, the dissemination of quotations, and
priority and parity of executions of Nasdaq Securities.
The Exchange will accept and process bids and offers in Nasdaq
Securities according to the same rules for its listed securities. In
accordance with Rules 55-- and 56--NYSE Amex Equities, the unit of
trading in Nasdaq Securities is 100 shares, rights or warrants, or such
lesser number as may be determined by the UTP Listing Market or the
Exchange. Odd-lot bids or offers will be processed and executed by
means of the Exchange's odd-lot order system pursuant to Rule 124--NYSE
Amex Equities. The round-lot and odd-lot portions of partial round-lot
orders will be processed and executed in accordance with Rule 124--NYSE
Amex Equities.
Bids and offers in Nasdaq Securities admitted to dealings on the
Exchange on an ``issued'' basis shall be made ``regular way'' in
accordance with Rules 64--, 65-- and 66--NYSE Amex Equities and, for
Nasdaq Securities admitted on a ``when-issued'' or ``when-distributed''
basis, bids and offers shall only be made ``when-issued'' or ``when-
distributed'' in accordance with Rule 63--NYSE Amex Equities.
[[Page 20406]]
As enforced by Exchange systems, bids and offers in Nasdaq
Securities shall comply with Rule 19--NYSE Amex Equities concerning
locking or crossing protected quotations in Regulation NMS stocks and
the Exchange shall disseminate quotes in accordance with Rule 60--NYSE
Amex Equities. Also, the minimum price variations prescribed in Rule
62--NYSE Amex Equities shall apply to all bids and offers in Nasdaq
Securities.
Orders for Nasdaq Securities shall be executed in price and time
priority and parity in accordance with all applicable NYSE Amex
Equities Rules, including Rule 72--NYSE Amex Equities.
The Exchange will display on the Trading Floor quotes and
executions for Nasdaq Securities on both the Exchange as well as from
other market centers in accordance with the UTP Plan (``Tape C''). Such
display will include the appropriate identifier indicating the SRO or
exchange reporting the execution to the Tape. Corporate action data for
Nasdaq Securities will be incorporated by the Exchange on a daily basis
after the close of regular trading and any adjustments to share price
will be made at that time.
6. Proposed Rule 508--NYSE Amex Equities (Openings and Closings)
Pursuant to proposed Rule 508--NYSE Amex Equities, the Exchange
proposes to conduct openings and closings for Nasdaq Securities
differently than for listed securities. As described more fully below,
the Exchange will not conduct an opening or closing auction in Nasdaq
Securities and will instead open trading on a quote at 9:30 a.m. and
close on the last sale price on the Exchange at 4 p.m.
a. Openings
Under proposed Rule 508(a), trading in Nasdaq Securities will not
open based on an opening auction but will instead open at 9:30 a.m. or
as soon thereafter as possible, or at such other time as may be
specified by the Exchange, based on a quote published by the DMM Unit
assigned to each particular security. Orders for Nasdaq Securities
shall not be accepted by the Exchange and will be systemically blocked
before trading opens on any business day.
The DMM Unit will be responsible for opening trading in its
assigned Nasdaq Securities by publishing an opening quote at 9:30 a.m.
or as soon thereafter as possible. Because Nasdaq Securities will open
on a quote, DMM Units will not be permitted or required to provide pre-
opening or opening indications as prescribed by Rules 15-- and 123D--
NYSE Amex Equities. In addition, because the Exchange will not conduct
an opening auction for Nasdaq Securities, DMM Units will not be
permitted or required to hold or represent orders for Nasdaq Securities
pursuant to Rule 115A.20--NYSE Amex Equities.
b. Closings
Under Rule 508(b), trading in Nasdaq Securities will not close
based on a closing auction but will instead close at the end of the
regular trading session at 4 p.m., or at such other time as may be
specified by the Exchange. Except for ``aggregate-price orders'',\17\
or ``closing-price orders'' entered to offset an error, entered in the
``Off-Hours Trading Facility'' in accordance with proposed Rule 511--
NYSE Amex Equities, orders for Nasdaq Securities will not be accepted
by the Exchange after the regular trading session on any business
day.\18\
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\17\ The Exchange is proposing to amend the definition of
``aggregate-price order'' under Rule 900--NYSE Amex Equities in
order to accommodate trading Nasdaq Securities in the Off-Hours
Trading Facility.
\18\ These terms are defined under Rule 900--NYSE Amex Equities.
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The ``Closing Price'' will be set at the price of the last sale in
a Nasdaq Security on the Exchange at or prior to the close of regular
trading at 4 p.m. (see Rules 502-- and 508--NYSE Amex Equities).\19\
Orders for Nasdaq Securities that are unexecuted at the close of
trading at 4 p.m. shall be cancelled.
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\19\ See also proposed Rule 501--NYSE Amex Equities.
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If, at or just prior to the close of trading at 4 p.m., the market
for a particular Nasdaq Security is manual or ``slow'' (for example,
because a gap quote has been published or a Liquidity Replenishment
Point has been reached), there will be a single trade at or immediately
after the close that will set the Closing Price. In such circumstances,
the DMM will pair off liquidity to the extent available and then
execute the final trade. All residual marketable interest for that
security received prior to the close of trading shall first be executed
at the Closing Price and then all unexecuted interest for the security
shall be cancelled.
When the market for a Nasdaq Security is slow at the close of
trading, the DMM Unit must execute the final trade in the security in a
manner consistent with a fair and orderly market, with reference to the
trading characteristics of the stock at issue, including its price,
average daily trading volume (``ADTV''), average volatility, the prior
sale of the security on the Exchange and the closing price on the UTP
Listing Market. To ensure this, Floor Governor approval is required to
close a Nasdaq Security that is ``slow.''
In the event of an extreme order imbalance at or near the close of
the regular trading session that could result in Closing Price
dislocation, the procedures of Rule 123C(9)--NYSE Amex Equities, which
permit the Exchange to temporarily suspend the hours of operation for
the solicitation and entry of orders into Exchange systems, shall
apply. However, because the Exchange will not conduct a closing auction
in Nasdaq Securities, no other procedures of Rule 123C--NYSE Amex
Equities shall apply to trading in Nasdaq Securities.
The proposed modifications to the opening and closing of the
trading of Nasdaq Securities require corresponding modifications to the
``GTC'' and ``Stop'' order types. Specifically, GTC Orders and
unelected Stop Orders for Nasdaq Securities that are not fully executed
at the close of the regular trading session shall be treated as Day
Orders and shall be cancelled; they will not remain on the Exchange's
systems overnight. In addition, because the Exchange will not conduct
either an opening or closing auction in Nasdaq Securities, the Exchange
will not accept MOC/LOC, OPG, CO or GTX Orders for Nasdaq Securities.
All other order types noted in Rule 13--NYSE Amex Equities will be
permitted for the trading of Nasdaq Securities.\20\
---------------------------------------------------------------------------
\20\ See proposed Rule 501--NYSE Amex Equities.
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7. Proposed NYSE Amex Equities Rule 509 (Dealings of DMM Units and
SLPs)
As noted above, the Exchange proposes to trade Nasdaq Securities
using the same DMM/SLP framework as currently used for its listed
securities.
a. DMM Units
DMM Units registered to trade Nasdaq Securities on the Exchange
will be required to fulfill their responsibilities and duties for those
securities in accordance with all applicable NYSE Amex Equities Rules
and requirements (``DMM rules''),\21\ subject to two modifications.
---------------------------------------------------------------------------
\21\ The term ``DMM rules'' is defined under Rule 98--NYSE Amex
Equities.
---------------------------------------------------------------------------
Under Rule 104--NYSE Amex Equities, for those Exchange-listed
securities in which they are registered, DMM Units are required to use
their capital to meet the obligation of maintaining a fair and orderly
market to the extent reasonably practicable. This requirement, in turn,
may be broken down into certain components, which
[[Page 20407]]
include quoting at the National Best Bid or National Best Offer for a
certain percentage of time, supplying liquidity as needed, managing
and/or facilitating manual or other transactions at specified times,
minimizing and stabilizing disparity in supply and demand as needed,
and maintaining price continuity and depth within specified guidelines.
None of these individual requirements is dispositive and they must all
be viewed together when evaluating the broader obligation to maintain a
fair and orderly market.\22\
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\22\ See Rules 72- and 104--NYSE Amex Equities. For a more
detailed discussion of DMM obligations, see Securities Exchange Act
Release No. 58845 (October 24, 2008), 73 FR 64379 (October 29, 2008)
(SR-NYSE-2008-46).
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In return for those obligations and restrictions, DMM Units are
entitled to trade on parity with Floor brokers and off-Floor orders in
their registered securities, are the sole market maker on the Exchange
in those securities, and receive financial incentives for providing
liquidity and executing odd-lot orders. DMM Units also have the ability
to set a Capital Commitment Schedule (``CCS''), which allows them to
indicate to Exchange systems where they are willing to add additional
liquidity to the market; if these pre-determined parameters are met,
the system automatically includes the additional CCS interest.\23\
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\23\ See Rules 72-, 104(d)- and 1000--NYSE Amex Equities
concerning parity and CCS. For information on the rebate structure,
see the Exchange's price list, available on the Exchange Web site at
http://www.nyse.com.
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For Nasdaq Securities, DMM Units will, insofar as reasonably
practicable, continue to be responsible for engaging in a course of
dealings for their own account and assisting in the maintenance of a
fair and orderly market for those securities in which they are
registered in accordance with Rule 104--NYSE Amex Equities. There are
two modifications, however.
First, in lieu of the tiered quoting requirement (5% and 10%)
currently in place for listed securities under Rule 104(a)(1)(A)--NYSE
Amex Equities, proposed Rule 509(a)(1) requires a DMM Unit to maintain
a quote at the National Best Bid or Offer (``inside'') in each assigned
Nasdaq Security an average of at least 10% of the time, or more, during
the regular business hours of the Exchange for each calendar month. As
for listed securities, time at the inside will be calculated as the
average of the percentage of time the DMM Unit has a bid or offer at
the inside, and credit will be given for executions for the liquidity
provided by the DMM Unit. Reserve or other hidden orders entered by the
DMM Unit will not be included in the inside quote calculations. Because
this quoting requirement will be applied on a stock-by-stock basis,
rather than aggregated across all securities that the DMM Unit trades,
the Exchange believes it is a more stringent standard than is currently
in place for listed securities.
Second, pursuant to Rules 104(f)(ii)-- and (iii)--NYSE Amex
Equities, DMM Units will continue to be responsible for maintaining
price continuity with reasonable depth for their registered Nasdaq
Securities in accordance with Depth Guidelines published by the
Exchange. However, in order to give the Exchange time to phase-in
appropriate Depth Guidelines, these provisions will not be operative
until 18 weeks after the approval of the proposed rule changes by the
Commission.\24\
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\24\ A phased-in approach is necessary so that appropriate Depth
Guidelines may be calculated based on actual trading data of Nasdaq
Securities on the Exchange. Accordingly, following implementation
and roll-out of the pilot program, the Exchange proposes to collect
60 trading days of trade data and would then implement Depth
Guidelines for trading Nasdaq Securities on NYSE Amex within 30
calendar days of the collection of the trade data. The eighteen week
phase-in period contemplates a two-week period to roll-out the pilot
program.
---------------------------------------------------------------------------
As is the case with listed securities, DMM Units will also be
responsible for facilitating openings, reopenings and closings for each
of the Nasdaq Securities in which they are registered in accordance
with applicable NYSE Amex Equities Rules, including the procedures of
proposed Rules 508- and 515--NYSE Amex Equities. DMM Units will also be
responsible for facilitating trading when the market is ``slow'' (such
as during a gap quote or an LRP) \25\ and helping to close Nasdaq
Securities that are subject to an imbalance. Other obligations would
continue to apply, including providing contra side liquidity as needed
for the execution of odd-lot orders for Nasdaq Securities received on
the Exchange, meeting stabilization and re-entry requirements, and
complying with the net capital requirements under Rules 103.20--,
4110-- and 4120--NYSE Amex Equities, as well as the Act.
---------------------------------------------------------------------------
\25\ For clarification, a DMM Unit facilitates trading in slow
markets by either conducting an auction or trading out of the slow
market in order to resume a ``fast'' (i.e. quote protected) market.
It does not mean, however, that a DMM Unit must participate on the
contra-side of the market when it is slow.
---------------------------------------------------------------------------
Because DMMs would retain obligations that other market
participants, both on the Exchange and in other markets, do not have,
DMM Units would retain the benefits of parity and liquidity incentives,
as well as the ability to use CCS, when trading Nasdaq Securities.\26\
In addition, DMMs would continue to be the sole market maker on the
Exchange in their registered Nasdaq Securities.
---------------------------------------------------------------------------
\26\ The Exchange will submit a separate fee filing detailing
the rebate structure for trading Nasdaq Securities at a later date.
---------------------------------------------------------------------------
The Exchange believes the enhanced quoting requirement and phased-
in Depth Guidelines are appropriate in connection with trading Nasdaq
Securities on the Exchange, particularly because the market dynamics
for trading Nasdaq Securities will be different from those for the
Exchange's listed securities. Although the Exchange will not be the
primary market for Nasdaq Securities and its market share is expected
to be small, at least initially, the Exchange believes that its DMM/SLP
market model will, for some market participants, provide an attractive
and competitive alternative for the trading of Nasdaq Securities that
does not currently exist.
In addition, other provisions of the NYSE Amex Equities Rules
related to DMM responsibilities and obligations would be modified,
including the following:
DMMs will not be required to obtain Floor Official
approval prior to engaging as a dealer in transactions for Nasdaq
Securities that fall under Rule 79A.20--NYSE Amex Equities.
Notwithstanding the prescriptions of Rule 36.30--NYSE Amex
Equities governing communications to and from the DMM Unit post on the
Trading Floor, an individual DMM registered in an ETF may use a
telephone connection or order entry terminal at the DMM Unit's post to
enter a proprietary order in the ETF in another market center, in a
component security of such ETF, or in an options or futures contract
related to such ETF, and may use the post telephone to obtain public
market information with respect to such ETF, options, futures, or
component securities. If the order in the component security of the ETF
is to be executed on the Exchange, the order must be entered and
executed in compliance with Rule 112--NYSE Amex Equities and SEA Rule
11a2-2(T), and must be entered only for the purpose of creating a bona
fide hedge for a position in the ETF. The Exchange is proposing to add
this provision in order to permit DMM Units registered in an ETF to
execute more efficiently hedging transactions for the security.\27\
---------------------------------------------------------------------------
\27\ This provision is modeled on a provision in NYSE Rule
36.30, approved by the Commission. See Securities Exchange Act
Release No. 44616 (July 30, 2001), 66 FR 40761 (August 3, 2001) (SR-
NYSE-2001-08) (order approving amendments to NYSE Rule 36.30).
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[[Page 20408]]
b. SLPs
SLPs registered in one or more Nasdaq Securities must fulfill their
responsibilities and duties for those securities in accordance with all
applicable NYSE Amex Equities Rules and requirements, including, but
not limited to, the requirements of Rule 107B--NYSE Amex Equities, and
the SLP quoting requirements for Nasdaq Securities shall be the same as
for securities listed on the Exchange.
8. Proposed NYSE Amex Equities Rule 510 (Derivative Securities
Products)
The Exchange also proposes some specific additional provisions that
will apply to the trading of Exchange Traded Funds that are ``new
derivative securities products,'' as defined in Rule 19b-4(e) under the
Act and traded pursuant to Rule 19b-4(e) thereunder.\28\
---------------------------------------------------------------------------
\28\ These provisions are based on similar rules adopted by
other exchanges and/or approved by the Commission for the generic
trading of derivative securities products based on unlisted trading
privileges. See, e.g., Securities Exchange Act Release No. 57448
(March 6, 2008), 73 FR 13597 (March 13, 2008) (SR-NSX-2008-05)
(order approving NSX Rule 15.9) and Securities Exchange Act Release
No. 59663 (March 31, 2009), 74 FR 15552 (April 6, 2009) (SR-Nasdaq-
2009-018) (notice of filing and immediate effectiveness for Nasdaq
Rule 5740).
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For each such ETF, the Exchange will file a Form 19b-4(e) with the
Commission. In addition, the Exchange will distribute an information
circular prior to the commencement of trading in each such product that
generally includes the same information as contained in the information
circular provided by the UTP Listing Market for the product, including:
(a) The special risks of trading the new product; (b) the Exchange
Rules that will apply to the new product, including Rule 405--NYSE Amex
Equities; (c) information about the dissemination of the value of the
underlying assets or indexes; and (d) the risks of trading outside of
the regular trading session for the product due to the lack of
calculation or dissemination of the value of the underlying assets or
index, the intra-day indicative value or a similar value.
Members and member organizations that trade these ETFs will be
subject to the prospectus delivery requirements of the Securities Act
of 1933, unless the product is the subject of an order by the
Commission exempting the product from certain prospectus delivery
requirements under Section 24(d) of the Investment Company Act of 1940
or the product is not otherwise subject to prospectus delivery
requirements under the Securities Act of 1933. As a result, members and
member organizations will be required to provide all purchasers of such
an ETF with a written description of the terms and characteristics of
the product at the time confirmation of the first transaction in the
product is delivered to the purchaser. In addition, members and member
organizations will be required to include a written description with
any sales material relating to the product that they provide to
customers or the public. Any other written materials provided by a
member or member organization to customers or the public making
specific reference to the ETF as an investment vehicle must include a
statement that such materials are available.
Members or member organizations carrying omnibus accounts for non-
members will be required to inform non-members that execution of an
order to purchase an ETF for the omnibus account will be deemed to
constitute agreement by the non-member to make such written description
available to its customers on the same terms as are directly applicable
to members and member organizations under this Rule. Upon request of a
customer, a member or member organization shall also provide a
prospectus for the particular product.
In order to accommodate the trading of ETFs that qualify under this
Rule, the Exchange is also proposing additional requirements for
trading halts. If a temporary interruption occurs in the calculation or
wide dissemination of the intraday indicative value, the value of the
underlying index, portfolio or instrument, or similar value of a
product and the UTP Listing Market halts trading in the product, the
Exchange, upon notification by the UTP Listing Market of such halt due
to such temporary interruption, shall also immediately halt trading in
that product.
If the interruption in the calculation or wide dissemination of the
intraday indicative value, the value of the underlying index, portfolio
or instrument, or similar value continues as of the commencement of
trading on the Exchange on the next business day, the Exchange shall
not commence trading of the product on that day. If the interruption in
the calculation or wide dissemination of the intraday indicative value,
the value of the underlying index, portfolio or instrument, or similar
value continues, the Exchange may resume trading in the product only if
calculation and wide dissemination of the intraday indicative value,
the value of the underlying index, portfolio or instrument, or similar
value resumes or trading in the product resumes on the UTP Listing
Market.
For an ETF where a net asset value or disclosed portfolio is
disseminated, the Exchange will immediately halt trading in such
product upon notification by the UTP Listing Market that the net asset
value or disclosed portfolio is not being disseminated to all market
participants at the same time. The Exchange may resume trading in the
product only when dissemination of the net asset value or disclosed
portfolio to all market participants at the same time resumes or
trading in the product resumes on the UTP Listing Market.
For an ETF that is listed on Nasdaq, such as the QQQs, Nasdaq rules
require and/or permit it to halt trading in such securities when net
asset value or other information is not being properly disseminated as
required (see Nasdaq Rule 4120(a)(9)-(10)).\29\ Pursuant to the UTP
Plan, Nasdaq is required to use the national market system
communication media (``Hoot-n-Holler'') to notify other participants of
such a halt and upon such notification the Exchange would halt trading
in the QQQs in accordance with the proposed rules.
---------------------------------------------------------------------------
\29\ See April 9 e-mail.
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Finally, due to the nature of ETFs such as the QQQs, the Exchange
proposes to restrict the allocation of that security and its
components. See proposed Rule 504--NYSE Amex Equities. In addition, the
Exchange will enter into a comprehensive surveillance sharing agreement
with markets trading components of the index or portfolio on which the
product is based to the same extent as the UTP Listing Market's rules
require the UTP Listing Market to enter into a comprehensive
surveillance sharing agreement with such markets.
9. Proposed NYSE Amex Equities Rule 511 (Off-Hours Trading)
Nasdaq Securities will be accepted by the Exchange's Off-Hours
Trading Facility as part of an aggregate-price (``basket'') order, or
as a closing-price order entered to offset a transaction made in error,
as those terms are defined under Rule 900--NYSE Amex Equities.\30\
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\30\ The Exchange is proposing to amend the definition of
``aggregate-price order'' under Rule 900--NYSE Amex Equities in
order to accommodate trading Nasdaq Securities in the Off-Hours
Trading Facility. See Exhibit 5.
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10. Proposed NYSE Amex Equities Rule 512 (Liquidity Replenishment
Points)
Given the different trading characteristics of Nasdaq Securities,
the Exchange proposes to amend the values used to calculate Liquidity
Replenishments Points (LRPs) for these securities in accordance with
Rule 1000--NYSE Amex Equities.
[[Page 20409]]
The Exchange expects that Nasdaq Securities will be much more
thinly traded on the Exchange, with lower volume and less liquidity
than its listed securities, and that prices for Nasdaq Securities will
be more volatile. As a result, in order to avoid triggering too many
``slow'' trading situations, the Exchange proposes wider LRP parameters
for trading Nasdaq Securities than for its listed securities.
Specifically, the Exchange proposes that, for each Nasdaq Security
(except for ETFs), the value used to calculate the LRP ranges shall be
ten percent (10%) of the Closing Price of the relevant security from
the prior regular trading session on the Exchange, rounded to the
nearest penny. These values will be recalculated by the Exchange on a
daily basis. For the first day of trading of each Nasdaq Security, the
LRP will be calculated using the Nasdaq closing price from the prior
trading session.
Upon the phase-in period, the Exchange intends to evaluate these
parameters to determine if they need to be adjusted in light of trading
activity for Nasdaq Securities on the Exchange.
11. Proposed NYSE Amex Equities Rules 513 (Trading Ahead of Customer
Limit Orders) and 514 (Trading Ahead of Customer Market Orders)
As described more fully below, proposed Rules 513-- and 514--NYSE
Amex Equities prescribe limitations on proprietary trading by members
and member organizations holding unexecuted customer orders in Nasdaq
Securities. In summary, a member firm handling an unexecuted customer
order in a Nasdaq Security will not be permitted to execute a
proprietary trade for that security at a price that would satisfy the
customer's order without executing the customer's order at that price.
In order to harmonize the obligations for members and member
organizations trading Nasdaq Securities on the Exchange with their
existing obligations for trading those securities off-Exchange,
proposed Rules 513-- and 514--NYSE Amex Equities are substantially
similar to FINRA's ``Manning Rule'' (NASD Interpretive Material 2110-2
and NASD Rule 2111). Subject to some technical amendments to apply the
Rules to the Exchange, proposed Rule 513--NYSE Amex Equities is based
on NASD IM-2110-2 and proposed Rule 514--NYSE Amex Equities is based on
NASD Rule 2111. Correspondingly, proposed Rules 513-- and 514--NYSE
Amex Equities exempt Exchange members and member organizations from
Rule 92--NYSE Amex Equities for the purposes of trading Nasdaq
Securities.
There are several reasons for adopting a Manning-like set of rules
rather than applying Rule 92--NYSE Amex Equities. To begin with, all
Exchange member organizations that have public customers are also FINRA
members and are therefore subject to FINRA's Manning Rule when trading
off-Exchange. In addition, because the Manning Rule and Rule 92--NYSE
Amex Equities differ in certain key aspects, the Exchange believes that
requiring member organizations to comply with two sets of potentially
conflicting standards when trading Nasdaq Securities would be confusing
and would require programming changes by member organizations.\31\
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\31\ Although there may be Exchange-only members that trade
Nasdaq Securities, such members are not subject to the Manning Rule
because they do not have public customers. Moreover, all Exchange
members that are registered as Floor brokers are also required to be
FINRA members and, unless proposed Rules 513-- and 514--NYSE Amex
Equities are approved, would be required to comply with both Rule
92--NYSE Amex Equities and the Manning Rule.
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Rule 92--NYSE Amex Equities prohibits, subject to some exceptions,
members and member organizations from entering proprietary orders if
the person responsible for the entry of that order has knowledge of an
unexecuted customer order on the same side of the market that could be
executed at the same price as the proprietary order.\32\ Rule 92 does,
however, permit a member or member organization to enter a proprietary
order for certain specified purposes while representing a customer
order that can be executed at the same price where the customer order
is not held and is for either an institutional account or is greater
than 10,000 shares and $100,000 in value (``Institutional/Large-size
Order''), provided that the member or member organization has provided
written disclosures and obtained documented affirmative consent from
the customer. Rule 92 also permits an exception where a member or
member organization enters a proprietary order to facilitate a riskless
principal transaction. In addition, the prescriptions of Rule 92 do not
apply to transactions made (i) by odd-lot dealers, (ii) on delivery
terms different from those for the unexecuted customer order, (iii) by
members or member organizations acting as market makers on other
markets, (iv) to correct bona fide errors, and (v) as intermarket sweep
orders made in compliance with Regulation NMS.\33\
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\32\ Technically, Rule 92--NYSE Amex Equities refers to
transactions involving ``Exchange-listed securit[ies]'', which would
not encompass Nasdaq Securities traded on the Exchange. However, the
Exchange recognizes that, whether it applies Rule 92 or the Manning
Rule, some form of limitation will be prescribed on proprietary
trading of Nasdaq Securities by members and member organizations due
to customer orders.
\33\ See generally Rule 92--NYSE Amex Equities.
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By comparison, the Manning Rule operates to prohibit a member firm
from executing, rather than entering, a proprietary trade at a price
equal to or better than an unexecuted customer order unless the firm
immediately executes the customer order at the same price (or better)
it executed its own proprietary order.\34\ Like Rule 92--NYSE Amex
Equities, the Manning Rule has an exception for Institutional/Large-
size Orders, subject to disclosure to the customer. However, unlike
Rule 92--NYSE Amex Equities, the Manning Rule does not require
affirmative consent from the customer. In addition, the Manning Rule
does not limit the specific types of transactions to which this
exception applies. The Manning Rule has other exceptions that mirror
those of Rule 92--NYSE Amex Equities, including for transactions made
by a member as a riskless principal or involving intermarket sweep
orders. The Manning Rule does not, however, permit exceptions for
transactions on delivery terms different from those for the unexecuted
customer order, by members or member organizations acting as market
makers on other markets, or to correct bona fide errors.\35\
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\34\ FINRA has proposed to combine NASD Interpretive Material
2110-2 and NASD Rule 2111 into a single FINRA Rule 5320. See
Securities Exchange Act Release No. 61168 (December 15, 2009), 74 FR
68084 (October 22, 2009) (SR-FINRA-2009-090). See also FINRA
Regulatory Notice 09-15 (March 12, 2009).
\35\ See NASD Interpretive Material 2110-2 and NASD Rule 2111.
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As is evident, Rule 92--NYSE Amex Equities differs from the Manning
Rule, most notably in its focus on order entry rather than execution.
Moreover, Rule 92--NYSE Amex Equities provides exceptions for certain
types of transactions that the Manning Rule does not. Thus, any dual
NYSE Amex Equities and FINRA member attempting to comply with both Rule
92--NYSE Amex Equities and the Manning Rule while trading Nasdaq
Securities on the Exchange would be subject to differing standards for
the same security solely because of where an order has executed.\36\
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\36\ There are other differences between Rule 92--NYSE Amex
Equities and the Manning Rule, including each Rule's definition of
``institutional account'', the reporting requirements for executing
riskless principal transactions, and minimum price improvement
standards. The Exchange notes that it, NYSE and FINRA are in the
process of harmonizing their respective customer order protection
rules. For a full discussion comparing the two Rules and the
proposed harmonization, see NYSE and NYSE Amex Equities Information
Memo 09-13 (March 12, 2009) and FINRA Regulatory Notice 09-15 (March
12, 2009).
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[[Page 20410]]
Moreover, the Exchange understands that firms generally code their
order entry, routing and execution systems to comply with Rule 92--NYSE
Amex Equities when trading on the Exchange and the Manning Rule when
trading on NASDAQ and other markets. It would be impractical and
unnecessarily burdensome to require member organizations to add Rule
92--NYSE Amex Equities parameters to their systems to account for both
the Manning Rule and Rule 92--NYSE Amex Equities when trading Nasdaq
Securities on the Exchange.
Requiring firms to comply with proposed Rules 513-- and 514--NYSE
Amex Equities rather than Rule 92--NYSE Amex Equities when trading
Nasdaq Securities comports with the broader goals of regulating the
market for these securities. The majority of trading in Nasdaq
Securities takes place on other markets in accordance with the
requirements of the Manning Rule, and FINRA and other SROs conduct
surveillance based on those parameters. Requiring member firms to
comply with proposed Rules 513-- and 514--NYSE Amex Equities rather
than Rule 92--NYSE Amex Equities ensures that, when Nasdaq Securities
are traded on the Exchange, FINRA and/or other SROs can properly
surveil these trades in the context of the overall market for those
securities.
Although firms will be required to comply with proposed Rules 513--
and 514--NYSE Amex Equities rather than Rule 92--NYSE Amex Equities,
there will not be any regulatory gaps. Currently, FINRA and the
Exchange have an agreement pursuant to Section 17(d) of the Act and
Rule 17d-2 thereunder (the ``17d-2 Agreement'') to allocate regulatory
responsibility for oversight of certain Exchange Rules. The Exchange
has proposed to FINRA to extend the regulatory oversight provided under
the 17d-2 Agreement to include customer order protection of Nasdaq
Securities and compliance with proposed Rules 513-- and 514--NYSE Amex
Equities, and, based on discussions with FINRA representatives, it is
anticipated that FINRA will approve.
Notwithstanding the proposed exemption from Rule 92--NYSE Amex
Equities, the Exchange will still require members and member
organizations to comply with all other applicable NYSE Amex Equities
Rules, any and all applicable rules or regulations of the UTP Listing
Market or FINRA and the federal securities laws and the rules
thereunder, related to proprietary trading while holding unexecuted
customer orders in the same security.\37\
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\37\ All Exchange members or member organizations that send
customer orders to the Exchange and have a public business are
currently, or will be required to also be, FINRA members (see Rule
2(b)--NYSE Amex Equities), and thus would need to comply with the
Manning Rule when trading Nasdaq Securities off-Exchange.
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12. Proposed NYSE Amex Equities Rule 515 (Trading Halts)
Generally, as prescribed in proposed Rule 515--NYSE Amex Equities,
the Exchange will follow all applicable NYSE Amex Equities Rules
governing halts or suspensions, for both regulatory and/or non-
regulatory purposes, of the trading of Nasdaq Securities on the
Exchange, including Rules 51--, 80B--, 123D-- and 510--NYSE Amex
Equities.
In addition, the Exchange will halt or suspend trading in a Nasdaq
Security when trading in that security has been halted or suspended by
the UTP Listing Market for regulatory reasons in accordance with its
rules and/or the UTP Plan.\38\ The Exchange will also halt or suspend
trading in a Nasdaq Security when the authority under which the
security trades on the Exchange or the UTP Listing Market has been
revoked. This can occur when the Nasdaq Security at issue is no longer
designated as an ``eligible security'' pursuant to the UTP Plan or is
no longer listed with the UTP Listing Market. Also, if the Exchange has
removed a Nasdaq Security from dealings trading will be halted or
suspended.\39\
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\38\ Under proposed Rule 501--NYSE Amex Equities, the Exchange
defines the term ``UTP Listing Market'' to have the same meaning as
the term ``Listing Market'', as defined under the ``UTP Plan'' (also
defined therein).
\39\ The provisions of Rule 123D(4)--NYSE Amex Equities, which
prescribe a special trading halt of ``Structured Products'' that
were listed on the Exchange at the time the trading of equities
securities migrated from the Exchange's legacy systems and
facilities at 86 Trinity Place to 11 Wall Street, shall not apply to
the trading of Nasdaq Securities.
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In the event that trading of a Nasdaq Security or Nasdaq Securities
is halted or suspended pursuant to proposed Rule 515--NYSE Amex
Equities, trading of the affected security or securities on the
Exchange will resume in accordance with the procedures of applicable
NYSE Amex Equities Rules, including Rule 508--NYSE Amex Equities, the
rules of the UTP Listing Market and/or the UTP Plan. Any orders for a
Nasdaq Security that are unexecuted at the time trading is halted on
the Exchange shall be cancelled and the Exchange shall not accept any
new orders for the affected security for the duration of the halt.
13. Proposed Rules 516-- and 518--NYSE Amex Equities (Reporting and
Recordkeeping; Clearance and Settlement)
As described more fully below, under proposed Rule 516--NYSE Amex
Equities: (1) Members and member organizations trading Nasdaq
Securities on the Exchange are subject to Rules 123-- and 132B--NYSE
Amex Equities; (2) if a member or member organization is also a FINRA
member subject to FINRA's Rule 7400 Series, such a firm is exempt from
Rules 123-- and 132B--NYSE Amex Equities; and (3) regardless of whether
or not a FINRA member, a Floor broker that receives an order in a
Nasdaq Security from another member via Exchange systems will be
subject to Rules 123-- and 132B--NYSE Amex Equities and exempt from
FINRA's Rule 7400 Series.
Rules 123-- and 132B--NYSE Amex Equities, inter alia, make up the
Exchange's transaction audit trail system.\40\ Specifically, Rule
132B--NYSE Amex Equities prescribes order tracking requirements for
transactions conducted on the Exchange. In relevant part, members and
member organizations are required to record and maintain certain
details of an order in an electronic order tracking system (``OTS'').
In addition, Rules 123(e)-- and (f)--NYSE Amex Equities require members
and member organizations that act as Floor brokers to record certain
details of orders received on the Floor and executed on the Exchange in
the Exchange's Front-End System Capture (``FESC''). Because the
Exchange's members and member organizations must already comply with
these requirements for the purposes of trading listed securities,
trading Nasdaq Securities on the Exchange does not present any
difficulties under these particular Rules.
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\40\ In addition, Rule 132A--NYSE Amex Equities requires members
and member organizations to synchronize their business clocks for
recording and Rule 132C--NYSE Amex Equities requires members and
member organizations to transmit audit trail records to the Exchange
upon request.
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However, the Exchange's OTS and FESC requirements are not the only
audit trail requirements for trading Nasdaq Securities on the Exchange.
Currently, most of the Exchange's members and member organizations are
also FINRA members and FINRA requires all trades in Nasdaq-listed
securities by its members, regardless of the market, to be reported to
its Order Audit Trail System (``OATS''), FINRA Rule Series 7400.
Although FINRA's
[[Page 20411]]
OATS contains substantially the same order information as the
Exchange's OTS and FESC, FINRA's OATS data is in a different format
from the data recorded by OTS and FESC and the systems are not directly
compatible. As a result, for those dual NYSE Amex/FINRA members and
member organizations that intend to enter and/or execute orders in
Nasdaq Securities on both the Exchange and other markets, compliance
with both the Exchange's and FINRA's audit trail requirements for the
purposes of trading Nasdaq Securities on the Exchange is not readily
feasible.
Due to this conflict, proposed Rule 516--NYSE Amex Equities
includes an exemption from the requirements of Rules 123-- and 132B--
NYSE Amex Equities for any members or member organizations that are
also FINRA members and subject to the requirements of FINRA's OATS
(FINRA Rule 7400). In addition, because NYSE Amex has not previously
traded Nasdaq-listed securities on the Exchange, some members and
member organizations, particularly Floor brokers that have previously
only conducted transactions in Exchange-listed securities, do not have
OATS-compliant systems and procedures. With the introduction of trading
Nasdaq Securities on NYSE Amex, certain members and member
organizations (and/or the Exchange) could incur significant expense
and/or delay if forced to convert to OATS-compliant systems.
To address this issue, the Exchange has sought, and expects to
receive formal confirmation of, interpretive guidance from FINRA that
its Rule 7440(c)(6) exempts from FINRA's OATS requirements those Floor
brokers who, regardless of their FINRA membership, receive an order in
a Nasdaq Security that is first routed to the Exchange through Exchange
systems (i.e. the Common Customer Gateway, or ``CCG'').\41\ Most orders
received by a Floor broker are received through CCG, where the orders
are automatically captured in the systems that feed the Exchange's
audit trail and then processed in accordance with their instructions.
However, in the case of orders in Nasdaq Securities that are received
by a Floor broker by means other than an Exchange system (e.g., orders
received over the telephone), the Floor broker would need to comply
with FINRA's OATS requirements. In addition, any Floor broker member
firm approved to route orders away from the Exchange pursuant to Rule
70.40--NYSE Amex Equities, and orders in Nasdaq Securities handled by
such firms, would be subject to FINRA's OATS requirements.
---------------------------------------------------------------------------
\41\ When acting in the capacity of a market maker for a Nasdaq
Security, a DMM Unit is exempt from FINRA's OATS requirements. See
FINRA Rule 7410(j).
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Under proposed Rule 516--NYSE Amex Equities the Exchange with [sic]
have access to a complete audit trail and there will be no gap in
regulatory oversight. For dual NYSE Amex/FINRA members, FINRA's OATS
rules will apply to an order in a Nasdaq Security up to when it is
routed to the Exchange. At that point, if the order is transmitted to a
Floor broker via an Exchange system, the Exchange's OTS and FESC
requirements will capture its subsequent handling and execution on the
Exchange. And, all Exchange-only, non-FINRA members or member
organizations will be subject to the Exchange's OTS and FESC
requirements throughout the handling of an order for a Nasdaq Security.
To ensure proper oversight of trading Nasdaq Securities, the Exchange
and FINRA can provide each other with copies of relevant audit trail
records and/or data pursuant to the Intermarket Surveillance Group
(``ISG''). Similarly, NYSE Amex will disseminate reports of executions
of Nasdaq Securities on the Exchange in accordance with applicable NYSE
Amex Equities Rules and the UTP Plan.
Finally, under proposed Rule 518--NYSE Amex Equities, members and
member organizations that conduct transactions involving Nasdaq
Securities on the Exchange will be required to comply with all
applicable NYSE Amex Equities Rules related to clearance and settlement
of such transactions.
Including Rules 123-- and 132B--NYSE Amex Equities, Rules 342-- and
351--NYSE Amex Equities, which require members and member organizations
to provide any trading information requested by the Exchange, also need
to be amended. In particular, the Exchange proposes to add language to
each of these rules specifying that they apply to both securities
listed on the Exchange and securities ``traded'' on the Exchange, which
includes Nasdaq Securities. See, e.g., Rule 123--NYSE Amex Equities,
Exhibit 5.
14. Proposed Rule 522--NYSE Amex Equities (Limitation of Liability)
Because the Exchange will be relying on data feeds from the UTP
Listing Market for the trading of Nasdaq Securities, the Exchange
proposes to include a specific provision limiting liability for any
loss, damage, claim or expense arising from any inaccuracy, error,
delay or omission of any data or information regarding Nasdaq
Securities, including, but not limited to, the collection, calculation,
compilation, reporting or dissemination of any Nasdaq Security
Information, as defined in Rule 522--NYSE Amex Equities, except as
provided in Rules 17-- and 18--NYSE Amex Equities. In addition, the
Exchange also expressly disclaims making any express or implied
warranties with respect to any Nasdaq Security, any Nasdaq Security
Information, or the underlying index, portfolio or instrument that is
the basis for determining the component securities of an ETF. See
Exhibit 5.
Proposed Amendments to Current NYSE Amex Equities Rules
The Exchange proposes to amend certain existing NYSE Amex Equities
rules to accommodate the trading of Nasdaq Securities on the Exchange.
1. Rule 2A--NYSE Amex Equities (Jurisdiction)
Rule 2A(b)--NYSE Amex Equities currently provides that the Exchange
has jurisdiction to approve listings applications for securities
admitted to dealings on the Exchange and may also suspend or remove
such securities from trading. The Exchange proposes to amend this Rule
to include the approval of the trading of Nasdaq Securities admitted to
dealings on the Exchange.
2. Rule 103B--NYSE Amex Equities (Security Allocation and Reallocation)
Rule 103B--NYSE Amex Equities prescribes the criteria and
procedures for the allocation and/or reallocation of NYSE Amex-listed
equities securities to registered and qualified DMM Units. In
particular, part IX of the Rule currently provides that NYSE Amex-
listed equities securities must be allocated to posts on the Exchange
Trading Floor that are exclusively designated for the trading of NYSE
Amex securities.
NYSE Amex-listed equities securities currently trade on Posts 1 and
2 on the Trading Floor. However, there are not enough panels on those
posts to accommodate the trading of additional hundreds of Nasdaq
Securities. In order to accommodate the trading of Nasdaq Securities,
the Exchange needs to be able to trade NYSE Amex-listed and Nasdaq
Securities on additional posts.
The Exchange therefore proposes to amend Rule 103B--NYSE Amex
Equities to permit NYSE Amex-listed securities and securities admitted
to dealings on the Exchange on a UTP basis to trade on posts throughout
the Trading Floor. To prevent any confusion that could arise among
members trading
[[Page 20412]]
both NYSE-listed and NYSE Amex-listed or traded securities, which trade
under different rules, proposed Rule 103B(IX) would provide that NYSE
Amex-listed and/or traded (i.e. Nasdaq Securities) securities shall
only be assigned to panels designated for the trading of such
securities.
A DMM Unit that is registered to trade both NYSE and NYSE Amex-
listed securities, as well as Nasdaq Securities, could trade these
securities at the same post. However, DMM Unit staff would not be
permitted to simultaneously trade both NYSE and NYSE Amex/Nasdaq
securities, and the DMM Unit would need to commit staff to trade NYSE
listed securities separate from staff committed to trade NYSE Amex
listed or traded securities at any given time during the trading day.
Intraday staff moves between panels would be permitted, however.
Proposed Amendments to Non-NYSE Amex Equities Rule 476A
Finally, the Exchange proposes to amend Non-NYSE Amex Equities Rule
476A Part 1A to include certain of the proposed NYSE Amex Equities Rule
500 Series in the Exchange's Minor Rule Violation Plan. Included are:
Rule 502--NYSE Amex Equities prohibition on making a bid,
offer or transaction, or routing an order, for Nasdaq Securities on or
from Exchange systems before 9:30 a.m. or after the close of the Off-
Hours Trading session.
Rule 504(b)(5)--NYSE Amex Equities requirement for a DMM
Unit registered in a Nasdaq Security that is an Exchange Traded Fund to
report the listed concentration measures.
Rule 504(b)(6)--NYSE Amex Equities requirement to commit
staff for the trading of NYSE-listed securities separate from that for
the trading of Exchange-listed securities and/or Nasdaq Securities and
prohibition on trading NYSE-listed securities together with Exchange-
listed securities and/or Nasdaq Securities at the same time.
Rule 508(a)(2)--NYSE Amex Equities requirement for a DMM
Unit to open trading in Nasdaq Securities at 9:30 a.m. or as soon
thereafter as possible.
Rule 508(b)(2)--NYSE Amex Equities requirements for
closing a Nasdaq Security in a manual or slow market.
Rule 509(a)--NYSE Amex Equities requirements for DMM
Units.
Rule 509(b)--NYSE Amex Equities requirements for DMM
communications from the Floor.
Rule 510(c)--NYSE Amex Equities requirements for
dissemination and distribution of information for Nasdaq Securities
that are derivative securities products.
Rules 513-- and 514--NYSE Amex Equities prohibitions on
proprietary trading ahead of customer orders.
Rule 516--NYSE Amex Equities requirements for reporting
and recordkeeping of transactions in Nasdaq Securities.
Rule 518--NYSE Amex Equities requirements for clearance
and settlement of transactions in Nasdaq Securities.
Violations of these Rules will be subject to the fine schedule in
Rule 476A. For individuals, first offenses may be charged $500.00,
second offenses may be charged $1,000.00, and subsequent offenses may
be charged $2,500.00. For member firms, first offenses may be charged
$1,000.00, second offenses may be charged $2,500.00, and subsequent
offenses may be charged $5,000.00.
2. Statutory Basis
The Exchange believes that the proposed rule changes are consistent
with, and further the objectives of, Section 6(b)(5) of the Act,\42\ in
that they are designed 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 proposed rule changes also
support the principles of Section 11A(a)(1) \43\ of the Act in that
they seek to ensure the economically efficient execution of securities
transactions and fair competition among brokers and dealers and among
exchange markets. The proposed rule changes also support the principles
of Section 12(f) of the Act, which govern the trading of securities
pursuant to a grant of unlisted trading privileges consistent with the
maintenance of fair and orderly markets, the protection of investors
and the public interest, and the impact of extending the existing
markets for such securities.
---------------------------------------------------------------------------
\42\ 15 U.S.C. 78f(b)(5).
\43\ 15 U.S.C. 78k-1(a)(1).
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The Exchange believes that the proposed rule changes are consistent
with these principles. By providing for the trading of Nasdaq
Securities on the Exchange on a UTP basis, the Exchange believes its
proposal will lead to the addition of liquidity to the broader market
for these securities and to increased competition among the existing
group of liquidity providers. The Exchange also believes that, by so
doing, the proposed rule changes will encourage the additional
utilization of, and interaction with, the NYSE Amex Equities market,
and provide market participants with improved price discovery,
increased liquidity, more competitive quotes and greater price
improvement for Nasdaq Securities.
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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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-NYSEAmex-2010-31 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEAmex-2010-31. This
file number should be included on the
[[Page 20413]]
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 publicly available. All submissions should refer to
File Number SR-NYSEAmex-2010-31 and should be submitted on or before
May 10, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
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\44\ 17 CFR 200.30-3(a)(12) and 200.30-3(a)(44).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-8859 Filed 4-16-10; 8:45 am]
BILLING CODE 8011-01-P