[Federal Register Volume 77, Number 75 (Wednesday, April 18, 2012)]
[Notices]
[Pages 23305-23307]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9288]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66797; File No. SR-NYSE-2012-09]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Adopt Recent Changes to FINRA Rules 7440 and 7450, and To Adopt Recent
Changes to FINRA Rule 5320 by Amending Supplementary Material .02 to
NYSE Rule 5320 To Require That Member Organizations Report to the Order
Audit Trail System Information Barriers Put Into Place by the Member
Organization in Reliance on Supplementary Material .02 to NYSE Rule
5320
April 12, 2012.
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 April 2, 2012, the New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to (i) adopt recent changes to Financial
Industry Regulatory Authority, Inc. (``FINRA'') Rules 7440 and 7450,
which the Exchange has incorporated by reference in its own rules, and
(ii) adopt recent changes to FINRA Rule 5320 by amending Supplementary
Material .02 to NYSE Rule 5320 to require that member organizations
report to the Order Audit Trail System (``OATS'') information barriers
put into place by the member organization in reliance on Supplementary
Material .02 to NYSE Rule 5320. The text of the proposed rule change is
available at the Exchange, www.nyse.com, the Commission's Public
Reference Room, and the Commission's Web site at www.sec.gov.
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 recent changes to FINRA Rules
7440 and 7450, which the Exchange has incorporated by reference in its
own rules, and (ii) adopt recent changes to FINRA Rule 5320 by amending
Supplementary Material .02 to NYSE Rule 5320 to require that member
organizations report to OATS information barriers put into place by the
member organizations in reliance on Supplementary Material .02 to NYSE
Rule 5320.
FINRA recently received Commission approval of changes to the order
recording and transmission requirements of the OATS rules in
[[Page 23306]]
FINRA Rules 7440 and 7450.\3\ First, FINRA amended FINRA Rule 7440 to
require FINRA members relying on the no-knowledge exception in
Supplementary Material .02 to FINRA Rule 5320 (Prohibition Against
Trading Ahead of Customer Orders) to report information to OATS
regarding the information barriers adopted by the member in reliance on
the exception--FINRA also added this requirement under Supplementary
Material .02 to FINRA Rule 5320. Second, FINRA amended FINRA Rule 7440
to extend, to all OATS-eligible securities, the existing requirement to
reflect on OATS reports a customer's instruction regarding display of
the customer's limit orders--the requirement previously applied only to
limit orders involving NMS stocks. Finally, FINRA amended FINRA Rule
7450 to codify the specific time by which OATS reports must be
transmitted to FINRA.
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\3\ See Securities Exchange Act Release No. 66021 (December 21,
2011), 76 FR 81551 (December 28, 2011) (SR-FINRA-2011-63) [sic].
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The Exchange recently adopted the NYSE Rule 7400 Series, which
consists of NYSE Rules 7410 through 7470 and is based substantially on
the FINRA Rule 7400 Series.\4\ In this regard, NYSE Rules 7440 and 7450
incorporate by reference the order data recording and transmission
requirements of FINRA Rules 7440 and 7450, respectively, by requiring
member organizations and associated persons to comply with FINRA Rules
7440 and 7450 as if those rules were part of the Exchange's rules.
Accordingly, the Exchange hereby proposes to adopt the changes to FINRA
Rules 7440 and 7450 that were approved pursuant to SR-FINRA-2011-
063.\5\
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\4\ See Securities Exchange Act Release No. 65523 (October 7,
2011), 76 FR 64154 (October 17, 2011) (SR-NYSE-2011-49).
\5\ The Exchange notes that the approved changes to FINRA Rules
7440 and 7450 that the Exchange proposes to adopt would be
applicable only to Exchange member organization [sic] that are also
FINRA members. In particular, the changes relate to cross-references
to FINRA Rule 5320, and for the Exchange, to NYSE Rule 5320, which
is not applicable to Proprietary Trading Firms, as defined in Rule
7410(p), because they do not have customers and therefore do not
need to maintain information barriers.
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The Exchange also recently adopted NYSE Rule 5320, which is
substantially the same as FINRA Rule 5320 and prohibits trading ahead
of customer orders with certain exceptions, including large order and
institutional account exceptions, a no-knowledge exception, a riskless
principal exception, an intermarket sweep order exception, and odd lot
and bona fide error transaction exceptions.\6\ The Exchange hereby
proposes to adopt as Supplementary Material .02(b) to NYSE Rule 5320
the same language that was approved pursuant to SR-FINRA-2011-063 as
Supplementary Material .02(c) to FINRA Rule 5320.\7\ Specifically, if a
member organization implements and utilizes appropriate information
barriers in reliance on the no-knowledge exception provided under
Supplementary Material .02 to NYSE Rule 5320, the member organization
must uniquely identify such information barriers as prescribed in FINRA
Rule 7440(b)(19).
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\6\ See Securities Exchange Act Release No. 65164 (August 18,
2011), 76 FR 53015 (August 24, 2011) (SR-NYSE-2011-43).
\7\ For consistency with Exchange rules, the Exchange proposes
to change references from ``members'' in Supplementary Material
.02(c) to FINRA Rule 5320 to ``member organizations'' in proposed
Supplementary Material .02(b) to NYSE Rule 5320. The Exchange also
proposes to designate the existing text of Supplementary Material
.02 to NYSE Rule 5320 as paragraph (a) thereto.
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The no-knowledge exception in Supplementary Material .02 to NYSE
Rule 5320 provides that if a member organization implements and uses an
effective system of internal controls--such as appropriate information
barriers--that operate to prevent one trading unit from obtaining
knowledge of customer orders held by a separate trading unit, that
other trading unit may trade in a proprietary capacity at prices that
would satisfy the customer orders held by the separate, walled-off
trading unit. Through the use of OATS, FINRA will be able to ascertain,
on an automated basis, those member organizations claiming the no-
knowledge exception.\8\ This will reduce the potential for ``false
positive'' alerts by allowing FINRA to account for the existence of
information barriers when running automated surveillance patterns
designed to identify inappropriate trading ahead of customer orders.
These new requirements should substantially reduce the number of
``false positives'' that are identified through automated surveillance
patterns by permitting FINRA to account for information barriers when
trading ahead may otherwise be indicated.
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\8\ All Exchange member organizations that are subject to NYSE
Rule 5320 are also FINRA members, and FINRA reviews compliance with
that rule pursuant to an allocation plan under Rule 17d-2 of the
Securities Exchange Act of 1934.
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The Exchange proposes to implement the changes proposed herein on
the same date that FINRA implements the changes approved pursuant to
SR-FINRA-2011-063, thereby eliminating the potential for different
regulatory requirements between common members.\9\
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\9\ FINRA has announced that it will implement the changes on
April 16, 2012. See http://www.finra.org/Industry/Compliance/MarketTransparency/OATS/OATSReport/P125612.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\10\ in general, and
furthers the objectives of Section 6(b)(5),\11\ in particular, because
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system and,
in general, to protect investors and the public interest. Specifically,
the proposed rule change would remove impediments to and perfect the
mechanism of a free and open market and a national market system by
providing greater harmonization between NYSE Rules and FINRA Rules of
similar substance and purpose. This would result in less burdensome and
more efficient regulatory compliance, which would foster cooperation
and coordination with persons engaged in facilitating transactions in
securities and promote the protection of investors and the public
interest. The changes proposed herein are also designed to prevent
fraudulent and manipulative acts and practices and to promote just and
equitable principles of trade by ensuring that FINRA Rules incorporated
by reference in the NYSE Rules and rules that are common to both NYSE
and FINRA remain consistent after amendments to the particular FINRA
Rules.
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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.
[[Page 23307]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6). 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 pursuant to Rule 19b-4(f)(6) under the
Act \14\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6) permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange requests
that the Commission waive the 30-day operative delay so that the
proposed rule change may become effective on the same date that FINRA
implements the changes to FINRA Rules 7440, 7450, and 5320.\15\ The
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest
and, therefore, designates the proposal operative upon filing.\16\
Waiving the 30-day operative delay will enable the Exchange to
implement the proposed rule change on the same day that FINRA
implements the changes to its rules on which the proposed rule change
is based, thereby eliminating the potential for different regulatory
requirements for members of both FINRA and the Exchange.
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ FINRA has announced that it will implement the changes on
April 16, 2012. See supra note 9.
\16\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSE-2012-09 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-2012-09. 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 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 NYSE's principal office
and on its Internet Web site at 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-2012-09, and should be submitted on
or before May 9, 2012.
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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-9288 Filed 4-17-12; 8:45 am]
BILLING CODE 8011-01-P