[Federal Register Volume 77, Number 37 (Friday, February 24, 2012)]
[Notices]
[Pages 11181-11184]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-4282]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66421; File No. SR-NYSE-2012-05]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change Amending NYSE Rule 476A To
Update Its ``List of Exchange Rule Violations and Fines Applicable
Thereto Pursuant to Rule 476A''
February 17, 2012.
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 7, 2012, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend NYSE Rule 476A to update its ``List
of Exchange Rule Violations and Fines Applicable Thereto Pursuant to
Rule 476ARule XX [sic]. The text of the proposed rule change is
available at the Exchange, the Commission's Public Reference Room, and
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,
[[Page 11182]]
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 amend NYSE Rule 476A to update its ``List
of Exchange Rule Violations and Fines Applicable Thereto Pursuant to
Rule 476A'' (``Rule 476A List'') to (i) make technical, non-substantive
changes to conform the list to previously-approved changes in Exchange
rules, (ii) update the rules relating to conduct by Designated Market
Makers (``DMM''), and (iii) add rules relating to conduct by DMMs.
Background
Under the Exchange's Minor Rule Violation Plan, NYSE Rule 476A, the
Exchange may impose a fine, not to exceed $5,000, on any member, member
organization, approved person or registered or non-registered employee
\4\ of a member or member organization for a minor violation of certain
specified Exchange rules (a ``summary fine''). Summary fines provide a
meaningful sanction for rule violations when the violation calls for
stronger discipline than an admonition or cautionary letter, but the
facts and circumstances of the violation do not warrant initiation of a
formal disciplinary proceeding under Rule 476.\5\
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\4\ Rule 476A(a) includes a reference to ``allied member''. The
Exchange proposes to replace that term with ``principal executive,''
which is consistent with a prior rule change eliminating the
category of ``allied member'' on the Exchange. See Securities
Exchange Act Release No. 58549 (September 15, 2008), 73 FR 54444
(September 19, 2008) (SR-NYSE-2008-80).
\5\ The Exchange's Minor Rule Violation Plan, Rule 476A, was
originally adopted by the Exchange and approved by the Commission in
1985. See Exchange Act Release No. 34-21688 (January 25, 1985), 50
FR 5025 (February 5, 1985). It has been amended numerous times since
its adoption.
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Proposed Non-Substantive Changes to Rule 476A List
The Exchange proposes the following non-substantive changes to
update the Rule 476A List to conform it to approved changes to Exchange
rules, as follows:
Update the titles of Rules 15, 15A, and 105
Update rule references that have been renumbered or
harmonized with a FINRA rule: Rule 72(b) to 72(d); 79A.30 to 79A.20;
103.12 to 103.11; and 346(b) to 3270
Delete references to rules that have been deleted: Rules
97.40 (reporting rule violation); 104.12 (DMM investment account rule);
107A.30 (reporting rule violation); 112A.10 (reporting rule violation);
123A.30 (percentage orders); 304(h)(2) (reporting rule violation);
346(c), (e), and (f) (Limitations on member organization employment and
failure to obtain Exchange approval rule violations); 421 (reporting
rule violation); 440F (reporting rule violation); and 440G (reporting
rule violation) \6\
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\6\ The Exchange also proposes to fix a typographical error in
the entry concerning Rule 343 and replace the term ``officer'' with
``office.''
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Update the description to rules that have been amended:
Rules 123C \7\ (deleting references to expiration Fridays and quarterly
expiration days); 411(b) (replacing the description to reflect the
amended rule); and 345(a) (deleting the reference to Securities Trader
Supervisor)
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\7\ The Exchange also proposes to add a reference to ``Rule
123C'' to the amended description, and move it up on the Rule 476A
List.
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Proposed Updates to Rule 476A List for DMM Conduct Rules
The current Rule 476A List includes rules that govern DMM conduct,
e.g., Rules 104(a)(1)(A), 104.10, and Exchange policies regarding
procedures to be followed in delayed opening situations. The Exchange
proposes to update the Rule 476A List with current rules governing DMM
conduct, and in particular, to include Rules 104 and 123D in the Rule
476A List. The Exchange further proposes to expand the references to
Rules 104 and 123D to add new elements to the Rule 476A List [sic]
The Exchange believes that the updates proposed below will provide
the Exchange with sufficient flexibility to address DMM failure to meet
their obligations. The Exchange recognizes that DMMs may, for many
reasons, fail to meet their affirmative obligations as prescribed under
Rules [sic] 104 or duties under Rule 123D. In some circumstances,
formal disciplinary measures in accordance with Rule 476 are warranted.
However, in other instances, formal discipline may be unwarranted, and
the Exchange believes that the addition of these Rules to Rule 476A
List will provide a more flexible and appropriate tool to enforce
potential failure by DMMs to adhere to the requirements set forth in
those rules, while preserving the Exchange's discretion to seek formal
discipline under the appropriate circumstances. The Exchange believes
that the proposed updated rule references cover the same subject matter
as are already addressed in the Rule 476A List, albeit in outdated
references. In addition, the Exchange believes it is also appropriate
to add new elements relating to Rule [sic] 104 and 123D to the Rule
476A List.
Rule 104
NYSE Rule 104 requires, inter alia, DMMs registered in one or more
securities traded on the Exchange to engage in a course of dealings for
their own account to assist in the maintenance of a fair and orderly
market, insofar as reasonably practicable, by contributing liquidity
when lack of price continuity and depth, or disparity between supply
and demand exists or is reasonably to be anticipated.\8\
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\8\ Rule 104 currently operates on a pilot basis, set to end on
July 31, 2012. The Exchange believes that the Rule 476A List should
reference those rules that are currently operational, even if
operating on a pilot basis.
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The Rule 476A List currently includes Rule 104(a)(1)(A), which
requires DMMs to maintain a bid or an offer at the National Best Bid
and National Best Offer (``inside'') at least 15% of the trading day
for securities in which the DMM unit is registered with a consolidated
average daily volume of less than one million shares, and at least 10%
for securities in which the DMM unit is registered with a consolidated
average daily volume equal to or greater than one million shares.
The Rule 476A List also includes an outdated reference to Rule
104.10. When the Exchange adopted the New Market Model, it adopted
current Rule 104 (on a pilot basis), which does not include a rule
reference of 104.10 that is the same as the former Rule 104.10.\9\
However, the subject matter formerly covered in Rule 104.10 continues
in the current Rule 104. For example, the text of former Rules
104.10(5) and (6) has been moved in substantially similar form to
current Rules 104(g), (h), and (i).
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\9\ See Exchange Act Release No. 58845 (October 24, 2008), 73 FR
64379 (October 29, 2008) (SR-NYSE-2008-46).
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More generally, although the Exchange has deleted former Rule
104.10(1)-(3), the subject matter of those rules has been carried
forward in various sections of current Rule 104. For example, former
Rule 104.10 specified the functions of DMMs, including the maintenance,
in so far as reasonably practicable, of a fair and orderly market. This
topic is now covered by Rules 104(a) and (f).
More specifically, former Rule 104.10(1) stated that the
maintenance of a fair and orderly market implies the
[[Page 11183]]
maintenance of price continuity with reasonable depth and the
minimizing of the effects of temporary disparity between supply and
demand. This subject matter is now covered in Rule 104(f)(ii). Former
Rule 104.10(2) concerned a DMM trading for his or her own account when
there is [sic] lack of price continuity, lack of depth, or disparity
between supply and demand exists or is reasonably to be anticipated.
This subject matter is similarly covered in Rule 104(f)(ii). Finally,
former Rule 104.10(3) provided that DMM dealings for his own account
must constitute a course of dealings reasonably calculated to
contribute to the maintenance of price continuity with reasonable
depth, and to minimizing the effects of temporary disparity between
supply and demand. This is similarly covered in Rule 104(f)(ii). The
Exchange further believes that Rule 104(f)(iii), which provides more
details about Depth Guidelines, is also related to former Rule
104.10(3). In particular, the Exchange was publishing Depth Guidelines
when Rule 104.10 was in effect and the only change in the New Market
Model's version of the rule is to codify this aspect of DMM
obligations.
The Exchange also believes that the subject matter of former Rules
104.10(1)-(3) is now covered in current Rules 104(a)(2)-(5). Current
Rules 104(a)(2)-(5) describe with specificity how a DMM can meet his or
her responsibilities and duties to maintain a fair and orderly market,
including facilitating openings and re-openings, the close of trading,
trading when a liquidity replenishment point is reached, and trading
when a ``gap'' quote procedure is being used. These rule provisions
simply provide detail of how a DMM is to meet its fair and orderly
obligation. These were functions that specialists formerly performed
when they were subject to former Rule 104.10(1)-(3), the difference now
being that these functions have been codified in the rule text.
The Exchange further proposes to add to the Rule 476A list Rules
104(b), (c), (d), and (e). The Exchange believes that, similar to Rule
104(a), (f), (g), (h), and (i), the requirements applicable to DMMs in
Rules 104(b), (c), (d), and (e) relate to the functions of the DMMs.
Because these are DMM obligations for which potential violations can
range in severity, including these elements of Rule 104 in the Rule
476A List is consistent with the current inclusion of other aspects of
Rule 104.
In addition, the Exchange believes it is appropriate to add Rule
104(a)(1)(B) to the Rule 476A List. Rule 104(a)(1)(B) governs the DMM's
new pricing obligations, which were implemented by all equities markets
on December 6, 2010.\10\ Accordingly, this provision was not previously
included in the Minor Rule Violation Plan. The Exchange believes it is
appropriate to add this element of Rule 104 to the Minor Rule Violation
Plan to provide greater flexibility with respect to the type of
disciplinary measures that may be invoked if there were a violation of
this rule. For example, a potential situation that may warrant a
summary fine rather than formal disciplinary action could be if a DMM
fails to maintain a quote consistent with Rule 104(a)(1)(B), but which
does not result in any harm to the market.
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\10\ See Exchange Act Release No. 63255 (Nov. 5, 2010), 75 FR
69484 (Nov. 12, 2010) (SR-NYSE-2010-69).
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As noted above, summary fines provide the Exchange with flexibility
to impose an appropriate level of discipline for violations that are
more serious than an admonition letter, but for which the facts and
circumstances do not warrant formal discipline. The Exchange believes
that providing flexibility for violations related to the DMM's new
pricing obligations and Rules 104(b), (c), (d), and (e) is in keeping
with the spirit of the existing Rule 476A List, which already includes
DMM conduct rules.
To reflect these changes, the Exchange proposes to include a single
reference to ``Rule 104 requirements for the dealings and
responsibilities of DMMs'' to the Rule 476A List, which would include
all of the subsections of Rule 104 as described above.\11\ The Exchange
further notes that these summary fines may be imposed, as applicable,
on either an individual DMM, or the DMM unit, as specified in the
subsections to Rule 104.
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\11\ The Exchange notes that it has separately proposed to
delete NYSE Rule 104(a)(6). See Securities Exchange Act Release No.
65736 (Nov. 10, 2011) (SR-NYSE-2011-56). The Exchange further notes
that other elements of Rule 104, i.e., Rule 104(j) and supplementary
material .05 and .10, are not related to DMM obligations, but rather
reflect operational aspects of the Exchange.
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Rule 123D
The Exchange also proposes to update the reference relating to
delayed openings in the Rule 476A list to instead reference a specific
rule, i.e., Rule 123D, and to add all elements of Rule 123D as they
relate to DMM conduct as being eligible under the Minor Rule Violation
Plan.
The Rule 476A List currently provides that ``violations of Exchange
policies regarding procedures to be followed in delayed opening
situations'' are eligible for summary fines under the Minor Rule
Violation Plan. Such Exchange policies are codified in Rule 123D.
Accordingly, the Exchange proposes to delete the general statement of
``violations of Exchange policies regarding procedures to be followed
in delayed opening situations'' and replace it with a reference to Rule
123D. In so doing, the Exchange further proposes to add the other
requirements of DMMs that are set forth in Rule 123D relating to
openings, re-openings, trading halts, and tape indications. The
Exchange believes that the additional flexibility of determining the
appropriate level of discipline for DMM violations of Rule 123D
conforms to the purpose of the existing Rule 476A List. In particular,
the Exchange notes that adding Rule 123D in its entirety as it relates
to DMM conduct is consistent with the existing inclusion of Rule 15 in
the Rule 476A List, which similarly governs DMM's conduct with respect
to pre-opening indications.
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 Securities
Exchange Act of 1934, as amended,\12\ (the ``Act''), in that they are
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system and, in general, to protect investors and the public
interest. The proposed rule changes also further the objectives of
Section 6(b)(6),\13\ in that they provide for appropriate discipline
for violations of provisions of the Act, the rules and regulations
thereunder, and Exchange rules and regulations.
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\12\ 15 U.S.C. 78f(b)(5).
\13\ 15 U.S.C. 78f(b)(6).
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The Exchange believes that the proposed rule changes are designed
to prevent fraudulent and manipulative acts and practices because they
will provide the Exchange with greater regulatory flexibility to
enforce the DMM requirements set forth in NYSE Rules 104 and 123D in a
more informal manner while also preserving the Exchange's discretion to
seek formal discipline for more serious transgressions as warranted. In
addition, the proposed rule change removes impediments to and perfects
the mechanism of a free and open market by updating the Minor Rule
Violation Plan by updating rule cite references, deleting references to
obsolete rules, and for DMM-related rules, both updating the rule
references to reflect
[[Page 11184]]
the current rules that govern the topics currently identified in
outdated rule references in the Minor Rule Violation Plan as well as
adding additional elements of the rules governing DMM conduct.
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 45 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 or disapprove 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 email to [email protected]. Please include
File Number SR-NYSE-2012-05 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-2012-05. This file
number should be included on the subject line if email 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 the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSE-2012-05 and should be
submitted on or before March 16, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-4282 Filed 2-23-12; 8:45 am]
BILLING CODE 8011-01-P