[Federal Register Volume 76, Number 43 (Friday, March 4, 2011)]
[Notices]
[Pages 12195-12198]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4894]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63976; File No. SR-NYSE-2011-06]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Adopting Supplementary Material .20 to Rule 123C To Provide for the
Treatment of Short Sale Orders at the Close
February 25, 2011.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on February 24, 2011, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been substantially prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt Supplementary Material .20 to Rule
123C (The Closing Procedures) to provide for the treatment of short
sale orders at the close, for purposes of execution priority, as orders
subject to tick restrictions \4\ during a period when a restriction on
the prices at which covered securities may be sold short is in effect
(``Short Sale Price Test'') under NYSE Rule 440B \5\ (which implements
the provisions of Rule 201 of Regulation
[[Page 12196]]
SHO (``Rule 201'') under the Act).\6\ The text of the proposed rule
change is available at the Exchange, the Commission's Public Reference
Room, and http://www.nyse.com.
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\4\ Orders subject to tick restrictions are sell ``plus'' and
buy ``minus'' orders. See NYSE Rule 13.
\5\ Amendments to NYSE Rule 440B to implement the short sale
price test restriction requirements of Rule 201 are the subject of a
separate rule filing. See SR-NYSE-2011-05.
\6\ 17 CFR 242.201.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
On February 26, 2010, the Commission adopted amendments to Rule
201.\7\ Among other things, the amendments establish a short sale-
related circuit breaker that, if triggered with respect to a covered
security,\8\ imposes a short sale price test.\9\ Amended Rule 201
became effective on May 10, 2010 and the compliance date for the Rule
is February 28, 2011.\10\
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\7\ Amendments to Regulation SHO, Securities Exchange Act
Release No. 61595 (Feb. 26, 2010), 75 FR 11232 (Mar. 10, 2010)
(``Rule 201 Adopting Release''). In the Rule 201 Adopting Release,
the Commission also adopted amendments to Rule 200(g) of Regulation
SHO to include a ``short exempt'' marking requirement. 17 CFR
242.200(g). See also Division of Trading and Markets: Responses to
Frequently Asked Questions Concerning Rule 201 of Regulation SHO
(``T&M FAQs'').
\8\ The term ``covered security'' shall have the same meaning as
in Rule 201 of Regulation SHO. Rule 201(a)(1) defines the term
``covered security'' to mean any ``NMS stock'' as defined under Rule
600(b)(47) of Regulation NMS. Rule 600(b)(47) of Regulation NMS
defines an ``NMS stock'' as ``any NMS security other than an
option.'' Rule 600(b)(46) of Regulation NMS defines an ``NMS
security'' as ``any security or class of securities for which
transaction reports are collected, processed, and made available
pursuant to an effective transaction reporting plan, or an effective
national market system plan for reporting transactions in listed
options.'' 17 CFR 242.201(a)(1); 17 CFR 242.600(b)(47); and 17 CFR
242.600(b)(46).
\9\ 17 CFR 242.201(b).
\10\ Rule 201 Adopting Release, 75 FR 11232. The Rule 201
compliance date, originally set for November 10, 2010, was extended
to February 28, 2011 in Securities Exchange Act Release No. 63247
(Nov. 4, 2010), 75 FR 68702 (Nov. 9, 2010). The May 10th effective
date and February 28th compliance date also apply to amended Rule
200(g).
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Rule 201(b) requires that trading centers,\11\ including the NYSE,
establish, maintain, and enforce written policies and procedures
reasonably designed to prevent the execution or display of a short sale
order of a covered security at a price that is less than or equal to
the current national best bid \12\ if the price of that covered
security decreases by 10% or more from the covered security's closing
price as determined by the listing market \13\ for the covered security
as of the end of regular trading hours on the prior day.\14\ In
addition, Rule 201(b) requires that trading centers establish,
maintain, and enforce written policies and procedures reasonably
designed to impose the Short Sale Price Test for the remainder of the
day and the following day (including the close on both days) when a
national best bid for the covered security is calculated and
disseminated on a current and continuing basis by a plan processor
pursuant to an effective national market system plan.\15\
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\11\ Rule 201(a)(9) states that the term ``trading center''
shall have the same meaning as in Rule 600(b)(78) of Regulation NMS.
Rule 600(b)(78) defines a ``trading center'' as ``a national
securities exchange or national securities association that operates
an SRO trading facility, an alternative trading system, an exchange
market maker, an OTC market maker, or any other broker or dealer
that executes orders internally by trading as principal or crossing
orders as agent.'' 17 CFR 242.600(b)(78).
\12\ The term ``national best bid'' shall have the same meaning
as in Rule 201 of Regulation SHO. Rule 201(a)(4) states that such
term shall have the same meaning as in Rule 600(b)(42) of Regulation
NMS. 17 CFR 242.201(a)(4); 17 CFR 242.600(b)(42).
\13\ The term ``listing market'' shall have the same meaning as
in Rule 201 of Regulation SHO. Rule 201(a)(3) defines the term
``listing market'' to have the same meaning as the term ``listing
market'' as defined in the effective transaction reporting plan for
the covered security. 17 CFR 242.201(a)(3). See also 17 CFR
242.201(a)(2).
\14\ 17 CFR 242.201(b)(1)(i).
\15\ 17 CFR 242.201(b)(1)(ii). In addition, if the price of a
covered security declines intra-day by at least 10% on a day on
which the security is already subject to the short sale price test
restriction of Rule 201, the restriction will be re-triggered and,
therefore, will continue in effect for the remainder of that day and
the following day. See Rule 201 Adopting Release, 75 FR 11232,
11253, n. 290. Rule 201 does not place any limit on the frequency or
number of times the circuit breaker can be re-triggered with respect
to a particular stock. See T&M FAQs, at Q&A 2.2.
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In order to implement the provisions of Rule 201, the Exchange has
proposed amendments to NYSE Rule 440B to establish the protocols for
determining when a Short Sale Price Test is to be triggered for a
covered security where the NYSE is the listing market. The proposed
Rule 440B amendments also provide that, except for certain permissible
and short exempt orders,\16\ during the period a Short Sale Price Test
is in effect for a covered security, Exchange systems will not execute
or display a short sale order with respect to that security at a price
that is less than or equal to the current national best bid.
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\16\ See paragraphs (f) and (g) of proposed Rule 440B regarding
the treatment of permissible and short exempt orders. See SR-NYSE-
2011-05.
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NYSE Rule 123C prescribes the method for determining the closing
print to be reported to the Consolidated Tape for each security at the
close of trading. Interest executed in the closing transaction is
allocated pursuant to NYSE Rule 72 and consistent with the hierarchy of
allocation of trading interest in Rule 123C(7). In the hierarchy of
allocation, better priced interest \17\ must receive an execution in
whole or in part (``must execute interest'') \18\ in order for the
security to close. Included in this category are MOC orders without
tick restrictions, MOC orders with tick restrictions that are eligible
to be executed at a price better than the closing price,\19\ better
priced limit orders, better priced limit on close (``LOC'') orders with
or without tick restrictions that are eligible for execution at a
better price than the closing price and Crowd interest.\20\
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\17\ Better priced interest means an order that is priced lower
than the closing price (in the case of an order to sell) or priced
higher than the closing price (in the case of an order to buy).
\18\ A market on close (``MOC'') order without tick restrictions
must be executed in its entirety at the closing price. Marketable
limit orders receive an execution subject to the availability of
contra side volume.
\19\ References in Rule 123C(7) to orders with tick restrictions
mean sell ``plus'' or buy ``minus'' orders, as defined in Rule 13.
\20\ Crowd interest means verbal floor broker interest at the
market entered by the designated market maker (``DMM'') to interact
with orders in the Display Book. See note 21 infra.
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After the ``must execute interest'' is satisfied, then any limit
orders represented in the Display Book \21\ at the closing price may be
used to offset the remaining imbalance.\22\ Next eligible for execution
in the hierarchy of allocation for the closing transaction are LOC
orders without tick restrictions limited to the closing price, then MOC
orders that have tick restrictions which limit the order's price to the
price of the
[[Page 12197]]
closing transaction,\23\ followed by LOC orders limited to the price of
the closing transaction that have tick restrictions, ``G'' orders,\24\
and finally closing offset orders.
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\21\ The Display Book system is an order management and
execution facility. The Display Book system receives and displays
orders to the DMM, contains order information, and provides a
mechanism to execute and report transactions and published reports
to the Consolidated Tape. The Display Book system is connected to a
number of other Exchange systems for the purposes of comparison,
surveillance, and reporting information to customers and other
market data and national market systems.
\22\ DMM interest, including better priced DMM interest entered
into the Display Book prior to the closing transaction that is
eligible to participate in the closing transaction is always
included in the hierarchy of execution as if it were interest equal
to the price of the closing transaction.
\23\ For example, the last sale on the Exchange was at a price
of $46.00 on a minus tick, the closing price is $46.01, all sell
plus MOC orders are limited to the closing price of $46.01 because
the closing transaction would be the next plus tick.
\24\ See Section 11(a)(1)(G) of the Act. G orders are orders for
an Exchange member's own account where the member meets a business
mix test that requires it to be primarily engaged in the business of
underwriting and distributing securities, selling securities to
customers, and/or acting as a broker and provided more than 50% of
its gross revenues is derived from such businesses and related
activities. G orders on the NYSE are required to yield priority,
parity and precedence to non-G orders.
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The Exchange proposes to establish the execution priority for short
sale orders at the close during a period when the Short Sale Price Test
is in effect. As provided for in proposed Rule 440B(h)(3), when the
Short Sale Price Test is in effect, Exchange systems will, in
connection with the closing transaction, re-price all short sale market
orders and short sale orders limited to the last published Exchange bid
or lower to one minimum price increment above the last published
Exchange bid. If the closing price will be at or below the last
published Exchange bid, such re-priced short sale orders will not
participate in the close. If the closing price is above the last
published Exchange bid, the re-priced short sale orders may participate
in the closing transaction, depending on whether the proposed closing
price is the same as the re-priced order, or if the re-priced order is
priced better than the closing price. If the re-priced order is priced
better than the closing price, such re-priced short sale order will
participate in the closing transaction.\25\ If the re-priced order is
priced at the same price as the closing price, such re-priced short
sale order plus all other short sale orders limited at that price \26\
may (but are not required to) participate in the closing transaction
consistent with how Rule 123C(7)(b) treats market or limit orders with
tick restrictions.
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\25\ See Rule 123C(7)(a).
\26\ These would include short sale orders that were already
priced above the last published Exchange bid.
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The Exchange therefore proposes to add new Supplementary Material
.20 to Rule 123C providing that short sale orders for a covered
security during a period when a Short Sale Price Test is in effect will
be treated, for purposes of execution at the close under Rule
123C(7)(b), as orders that have tick restrictions.\27\ Thus, short sale
orders that are eligible to participate in the closing transaction and
that are priced at the same price as the closing transaction will be
treated in the same manner as sell ``plus'' and buy ``minus'' tick
restrictive orders priced at the closing price.\28\ As a result, re-
priced short sale orders priced at the closing price will be eligible
for participation at the close following limit orders represented in
the Display Book with a price equal to the closing price and LOC orders
with a price equal to the closing price.
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\27\ The Exchange will not be making any changes in its opening
and re-opening procedures in connection with the implementation of
the short sale price test restrictions of Rule 201. The presence of
short sale price test restrictions will have no impact on the
priority of orders eligible to participate in openings and re-
openings.
\28\ See NYSE Rule 13 (defining Sell ``Plus''-Buy ``Minus''
Orders). A sell ``plus'' order is an order to sell a specified
amount of stock as long as the price of the trade is not lower than
the price of the last sale if the last sale was a plus or zero plus
tick, and is not lower than the last sale plus the minimum change in
the price if the last sale was a minus or zero minus tick. A buy
``minus'' order is an order to buy a specified amount of stock as
long as the price to be executed is not higher than the price of the
last sale if the last sale was a minus or zero minus tick, and is
not higher than the price of the last sale less than the minimum
change in the price of the stock if the last sale was a plus tick or
zero plus tick.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\29\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\30\ in particular, in that it is designed to, among
other things, prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, and, in general, to
protect investors and the public interest. The proposal is designed to
implement the provisions of Rule 201 of Regulation SHO by establishing,
maintaining and enforcing written policies and procedures reasonably
designed to prevent the execution or display of a short sale order of a
covered security at the close in violation of the Short Sale Price Test
established in that rule. To that end, the proposed rule change will,
among other things, amend the Exchange's procedures for determining the
closing price by treating short sale orders as orders subject to tick
restrictions during a period when a Short Sale Price Test is in effect.
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\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \31\ and Rule 19b-4(f)(6) thereunder.\32\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \33\ and Rule
19b-4(f)(6)(iii) thereunder.\34\
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\31\ 15 U.S.C. 78s(b)(3)(A)(iii).
\32\ 17 CFR 240.19b-4(f)(6).
\33\ 15 U.S.C. 78s(b)(3)(A)(iii).
\34\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \35\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\36\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Commission hereby
grants the request. Waiving the 30-day operative delay will allow the
Exchange to implement the proposed amendments by February 28, 2011,
which, as noted by the Exchange, is the compliance date for amendments
to Regulation SHO under the Act. By waiving the operative delay, the
Exchange will be able to comply with the amendments to Regulation SHO
by February 28, 2011. Therefore, the Commission believes it is
consistent with the protection of investors and the public interest to
waive the 30-day operative delay and
[[Page 12198]]
designates the proposal as operative upon filing.\37\
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\35\ 17 CFR 240.19b-4(f)(6).
\36\ 17 CFR 240.19b-4(f)(6)(iii).
\37\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NYSE-2011-06 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2011-06. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room 100 F
Street, NE., Washington, DC 20549-1090. Copies of the filing will also
be available for inspection and copying at the NYSE's principal office
and on its Internet Web site at http://www.nyse.com. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSE-2011-06 and should be
submitted on or before March 25, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4894 Filed 3-3-11; 8:45 am]
BILLING CODE 8011-01-P