[Federal Register Volume 76, Number 63 (Friday, April 1, 2011)]
[Notices]
[Pages 18278-18280]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-7654]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64136; File No. SR-NYSE-2011-11]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending NYSE Rule 440B to Modify the Exchange's Procedures for
Handling Short Sale Orders During a Period When the Short Sale Price
Test Restrictions of Rule 201 of Regulation SHO are In Effect
March 28, 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 March 25, 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 amend NYSE Rule 440B (Short Sales) to
modify the Exchange's procedures for handling short sale orders during
a period when the short sale price test restrictions of Rule 201 of
Regulation SHO (``Rule 201'') \4\ are in effect (``Short Sale
Period''). 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\ 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
of Regulation SHO under the Act.\5\ In order to implement the
provisions of revised Rule 201, the Exchange amended NYSE Rule 440B
(Short Sales) to (1) Establish procedures for the Exchange, as a
listing market, to determine that the short sale price test
restrictions of Rule 201 have been triggered for a covered security,
(2) establish the protocols for the handling of short sale orders by
the Exchange, as a trading center, in the event the short sale price
test restrictions of Rule 201 are triggered, including establishing
what types of short sale orders will be re-priced to achieve a
``Permitted Price'' (as defined and calculated in Rule 440B(e)), in
accordance with Rule 201, during a Short Sale Period, (3) establish the
Exchange's procedures regarding the execution and display of
permissible orders during a Short Sale Period, and the execution and
display of orders marked ``short exempt'' during such a period, (4)
establish the Exchange's procedures regarding the permissible execution
price of short sale orders in single-priced opening, re-opening and
closing transactions during a Short Sale Period, and (5) provide that,
during a Short Sale Period, 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 (except as
otherwise provided by Rule 440B and consistent with Rule 201).\6\
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\5\ See Securities Exchange Act Release No. 61595 (February 26,
2010), 75 FR 11232 (March 10, 2010) (File No. S7-08-09; Amendments
to Regulation SHO) (``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).
\6\ See Securities Exchange Act Release No. 63977 (February 25,
2010), 76 FR 12165 (March 4, 2011) (SR-NYSE-2011-05).
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Under Rule 440B(e), during a Short Sale Period, short sale orders
that are limited to the national best bid or lower and short sale
market orders will be re-priced by Exchange systems one minimum price
increment above the current national best bid to permit their execution
at a price that is compliant with the short sale price test
restrictions of Rule 201. Consistent with Rule 201,\7\ the Permitted
Price for securities for which the national best bid is $1 or more is
$.01 above the national best bid; the Permitted Price for securities
for which the national best bid is below $1 is $.0001 above the
national best bid.\8\
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\7\ See Rule 201 Adopting Release at 11247.
\8\ 17 CFR 242.612.
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Among other things, Rule 440B(f) implements Rule 201(b)(1)(iii)(A),
which provides that a trading center must have policies and procedures
reasonably designed to permit the execution of a displayed short sale
order of a covered security if, at the time of the initial display of
the short sale order, the order was at a price above the current
national best bid. Rule 440B(f) specifically provides that the Exchange
will execute and display a short sale order without regard to price if,
at the time of the initial display of the short sale order, the order
was at a price above the then current national best bid.
The Exchange proposes to amend Rule 440B(e) to provide for how
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Exchange systems will treat short sale orders that are not marked
``short exempt'' during a Short Sale Period, i.e., displayed short sale
orders pursuant to Rule 440B(f) or non-marketable displayable or non-
displayed short sale orders that Exchange systems have not yet re-
priced pursuant to Rule 440B(e), and that would be required to be
routed to a protected bid pursuant to Regulation NMS, which, by
definition, would be the national best bid or lower. An example of a
situation where Exchange systems would otherwise be required to route
to the national best bid includes the following: (1) A short sale order
is displayed pursuant to Rule 440B(f), (2) the Exchange enters a
``slow'' state, for example, if the Exchange reaches a liquidity
replenishment point pursuant to Exchange Rule 1000, and (3) when the
Exchange resumes ``fast'' trading, the previously displayed short sale
order crosses the national best bid.\9\ In such scenario, pursuant to
Regulation NMS, the Exchange would be required to route such previously
displayed short sale order to be executed against the national best
bid.
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\9\ The Exchange enters a ``slow'' trading state, or ``Non-Firm
Mode'' when, pursuant to Rule 602(a)(3)(i) of Regulation NMS and
Exchange Rule 60(c)(ii)(A) and (B), the Exchange quotation is not
available for automatic execution. The Exchange resumes a ``fast''
trading state, or ``Normal Mode'' when the Exchange is open for
trading and collects, processes, and makes available to quotation
vendors the highest bid and the lowest offer, and the quotation
size, in compliance with Rule 602(a) of Regulation NMS and Exchange
Rule 60(c)(i).
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The Exchange proposes to address how Exchange systems will treat
short sale orders that have been displayed pursuant to Rule 440B(f) or
that are not yet marketable and therefore have not yet been re-priced,
and that would otherwise be required to be routed to an away market.
For such scenarios, the Exchange proposes that rather than route such
short sale orders to the national best bid, the Exchange will instead
re-price such short sale orders to a Permitted Price, as provided for
in Rule 440B(e). In particular, the proposed amendment to Rule 440B
would add new subparagraph (e)(2), which would provide that, during a
Short Sale Period, Exchange systems will not route to an away market
short sale orders that have been displayed pursuant to Rule 440B(f) or
that have not yet been re-priced consistent with Rule 440B(e) and
instead will re-price such orders to a Permitted Price. In addition,
the proposed amendment would renumber existing subparagraph (e)(2) as
(e)(3). The Exchange further proposes to amend Rule 440B(e)(3) to
provide that Exchange systems will not route the DMM interest
identified in that subparagraph and will instead cancel such interest.
Accordingly, if Exchange systems would otherwise route such DMM
interest to an away market in compliance with Regulation NMS, during a
Short Sale Period, Exchange systems will instead cancel such DMM short
sale interest rather than route it.
The Exchange also proposes a clarifying amendment to Rule 440B(g)
to specify that if a short sale order has been marked ``short exempt,''
Exchange systems will display, execute, and route such order without
regard to whether the order is at a Permitted Price.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\10\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\11\ 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 refining the
Exchange's written policies and procedures reasonably designed to
prevent the execution or display of a short sale order of a covered
security in violation of the short sale price test restrictions
established in that rule. To that end, the proposed rule change will
establish the Exchange's procedures regarding handling of short sale
orders during a Short Sale Period that might otherwise be routed to
away markets.
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\10\ 15 U.S.C. 78f(b).
\11\ 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 \12\ and Rule 19b-4(f)(6) thereunder.\13\
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) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\12\ 15 U.S.C. 78s(b)(3)(A)(iii).
\13\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6)\14\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\15\ 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.\16\ Waiving the 30-day operative delay will allow
the Exchange to handle short sale orders during a Short Sale Period
that might otherwise be routed to an away market in a manner that is
consistent with Rule 201. Therefore, the Commission believes that it is
consistent with the protection of investors and the public interest to
waive the 30-day operative delay and designates the proposal as
operative upon filing.
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ 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:
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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-2011-11 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-2011-11. 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-2011-11 and should be submitted on
or before April 22, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-7654 Filed 3-31-11; 8:45 am]
BILLING CODE 8011-01-P