[Federal Register Volume 77, Number 76 (Thursday, April 19, 2012)]
[Notices]
[Pages 23532-23534]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-9408]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66809; File No. SR-NYSEAmex-2012-10]
Self-Regulatory Organizations; NYSE Amex LLC; Order Granting
Approval of a Proposed Rule Change Amending NYSE Amex Rule 476A To
Update Its ``List of Equities Rule Violations and Fines Applicable
Thereto''
April 13, 2012.
I. Introduction
On February 16, 2012, NYSE Amex LLC (``Exchange'' or ``NYSE Amex'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
amend NYSE Amex Rule 476A to update its ``List of Equities Rule
Violations and Fines Applicable Thereto.'' The proposed rule change was
published for comment in the Federal Register on March 5, 2012.\3\ The
Commission received no comment letters on the proposed rule change.
This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4 .
\3\ See Securities Exchange Act Release No. 66481 (February 28,
2012), 77 FR 13159 (``Notice'').
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II. Description
By way of background, NYSE Amex Rule 476 governs disciplinary
proceedings involving charges against members, member organizations,
principal executives, approved persons, employees, or others for
violations of the federal securities laws, Exchange rules and
agreements with the Exchange, and other offenses listed in the rule.
NYSE Amex Rule 476A, ``Imposition of Fines for Minor Violation(s)
of Rules,'' provides that, in lieu of commencing a disciplinary
proceeding under Rule 476, the Exchange may (subject to specified
requirements) ``impose a fine, not to exceed $5,000, on any member,
member organization, principal executive, approved person, or
registered or non-registered employee of a member or member
organization, for
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any violation of a rule of the Exchange, which violation the Exchange
shall have determined is minor in nature.'' \4\ The provisions of Rule
476A are known as the Exchange's Minor Rule Violation Plan.
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\4\ NYSE Amex Rule 476A(a).
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According to the Exchange, the ``summary fines'' under Rule 476A
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. A ``List
of Equities Rule Violations and Fines Applicable Thereto'' (``Rule 476A
List'') is appended as Part 1A of the Supplementary Material to the
rule.
In the instant proposal, NYSE Amex proposes to amend the 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 (``DMMs''), and
(iii) add rules relating to conduct by DMMs, as follows:
Proposed Non-Substantive Changes to Rule 476A List
The Exchange proposes to update the Rule 476A List by updating the
title of a rule, updating references to rules that have been renumbered
or harmonized with a Financial Industry Regulatory Authority
(``FINRA'') rule, deleting references to rules that have been deleted,
updating the descriptions of rules that have been amended, harmonizing
the Rule 476A List with the list in the New York Stock Exchange
(``NYSE'') Minor Rule Violation Plan, and fixing a typographical
error.\5\
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\5\ For a more detailed description of these changes, see
Notice, supra note 3.
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Proposed Updates to Rule 476A List for DMM Conduct Rules
The current Rule 476A List includes certain rules that govern DMM
conduct (e.g., NYSE Amex Equities Rules 104(a)(1)(A) and 104.10). The
Exchange proposes to update the Rule 476A List with current rules
governing DMM conduct. In particular, under the proposed rule change,
the list would be amended to include, more expansively, ``Rule 104--
NYSE Amex Equities requirements for the dealings and responsibilities
of DMMs,'' as well as ``Rule 123D--NYSE Amex Equities requirements for
DMMs relating to openings, re-openings, delayed openings, trading
halts, and tape indications.'' Thus, additional elements of Rule 104,
as well as Rule 123D, would be included in the Minor Rule Violation
Plan, as further detailed below.
Rule 104
NYSE Amex Equities Rule 104 requires 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.\6\
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\6\ NYSE Amex Equities Rule 104 currently operates on a pilot
basis, set to end on July 31, 2012. The Exchange stated its belief
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 the following elements of
Rule 104:
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 10% of the trading day for securities in which
the DMM unit is registered that have a consolidated average daily
volume of less than one million shares, and at least 5% for
securities in which the DMM unit is registered that have a
consolidated average daily volume equal to or greater than one
million shares; and
Rule 104.10, which is described in the Rule 476A List
as relating to ``Functions of DMM.'' Rule 104.10 refers to a former
rule relating to certain subject matters that, according to the
Exchange, continue to be covered in the current Rule 104. NYSE Amex
currently does not have a Rule 104.10.
The proposed rule change would, instead, include a single reference
in the Rule 476A List identifying ``Rule 104--NYSE Amex Equities
requirements for the dealings and responsibilities of DMMs'' as subject
to the Minor Rule Violation Plan. The proposed rule change would have
the effect of adding to the Rule 476A List Rules 104(b), (c), (d), and
(e),\7\ as well as Rule 104(a)(1)(B), the rule that governs the DMM's
new pricing obligations, which were implemented by all equities markets
on December 6, 2010.\8\
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\7\ See Notice, supra note 3 at 13160-61 for a full description
of the elements of Rule 104 that, under the proposal, would be
included in the Minor Rule Violation Plan. The Exchange states that
other elements of Rule 104 (i.e., Rule 104(j) and supplementary
material .05) are not related to DMM obligations, but rather reflect
operational aspects of the Exchange. See id. at note 8. The Exchange
notes that, in a separate filing, it has proposed to delete NYSE
Amex Equities Rule 104(a)(6). See Securities Exchange Act Release
No. 65735 (November 10, 2011), 76 FR 71405 (November 17, 2011) (SR-
NYSEAmex-2011-86). The Commission instituted proceedings to
determine whether to disapprove SR-NYSEAmex-2011-86. See Securities
Exchange Act Release No. 66397 (February 15, 2012), 77 FR 10586
(February 22, 2012).
\8\ See Securities Exchange Act Release No. 63255 (November 5,
2010), 75 FR 69484 (November 12, 2010) (SR-NYSEAmex-2010-96).
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Rule 123D
The Exchange also proposes to include a reference to delayed
openings, which is addressed in NYSE Amex Equities Rule 123D, in the
Rule 476A List to harmonize the Rule 476A List with the list in the
NYSE Minor Rule Violation Plan as existed at the time the Notice was
filed with the Commission.\9\ Further, consistent with a recent NYSE
filing, the Exchange proposes to expand the reference to Rule 123D to
include other elements of that rule (e.g., openings, re-openings,
trading halts, and tape indications) as being eligible under the
Exchange's Minor Rule Violation Plan.\10\ The effect of the change
would be to include additional requirements of DMMs set forth in Rule
123D--relating to openings, re-openings, trading halts, and tape
indications--in the Minor Rule Violation Plan.
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\9\ At the time of filing of this proposed rule change,
``violations of Exchange policies regarding procedures to be
followed in delayed opening situations'' were eligible for summary
fines under the NYSE Minor Rule Violation Plan. According to the
Exchange, such policies are codified in NYSE Rule 123D, as well as
in NYSE Amex Equities Rule 123D.
\10\ The Commission recently approved a proposed rule change by
NYSE to, among other things, include ``Rule 123D requirements for
DMMs relating to openings, re-openings, delayed openings, trading
halts, and tape indications'' in its Minor Rule Violation Plan. See
Securities Exchange Act Release No. 66758 (April 6, 2012), 77 FR
22032 (April 12, 2012).
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III. Discussion and Commission Findings
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\11\ In
particular, the Commission believes that the proposed rule change is
consistent with Section 6(b)(5) of the Act \12\ because expanding the
list of DMM obligations that are subject to the Minor Rule Violation
Plan should afford the Exchange increased flexibility in carrying out
its supervisory responsibilities, and, in doing so, help to meet the
aim of protecting investors and the public interest.
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\11\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\12\ 15 U.S.C. 78f(b)(5).
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The Commission also believes that the proposed rule change is
consistent with
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Sections 6(b)(1) and 6(b)(6) of the Act,\13\ which require that an
exchange enforce compliance with, and have rules that provide
appropriate discipline for violations of, the Act, the rules and
regulations thereunder, and Exchange rules. As an initial matter, the
proposed rule change will further these objectives through its
clarification of the list of Exchange rule violations that are subject
to NYSE Amex Rule 476A by updating rule titles and rule references,
deleting references to rules that have been deleted, updating
descriptions of rules that have been amended, and fixing a
typographical error.
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\13\ 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(6).
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Further, the Commission recognizes that the proposed rule change
will render violations of DMM obligations under Rule 104 that were not
previously on the Rule 476A List,\14\ as well as violations of DMM
obligations under Rule 123D, as eligible for treatment as minor
violations.\15\ However, the Commission notes that designating a rule
as subject to the Minor Rule Violation Plan does not signify that
violation of the rule will always be deemed a minor violation. As noted
by the Exchange, Rule 476A preserves the Exchange's discretion to seek
formal discipline, as warranted, when transgressions of rules
designated as eligible for the Minor Rule Violation Plan are found to
be more serious. Thus, the Exchange will remain able to require, on a
case-by-case basis, formal disciplinary action for any particular
violation. Therefore, the Commission believes that the proposed rule
change will not compromise the Exchange's ability to seek more
stringent sanctions for the more serious violations of Rules 104 and
123D.
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\14\ The Commission believes that it is appropriate to include
in NYSE Amex Rule 476A references to rules that are currently
operating on a pilot basis.
\15\ The Commission also recognizes that the Exchange proposes
to harmonize its Rule 476A List with the NYSE Minor Rule Violation
Plan by adding violations not currently included in the Rule 476A
List.
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In addition, because NYSE Amex Rule 476A provides procedural rights
to a person fined under the rule, entitling the person to contest the
fine and receive a full disciplinary proceeding,\16\ the Commission
believes that NYSE Amex Rule 476A, as amended by this proposed rule
change, will provide a fair procedure for the disciplining of Exchange
members and persons associated with members, consistent with Sections
6(b)(7) and 6(d)(1) of the Act.\17\
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\16\ See NYSE Amex Rule 476A(d).
\17\ 15 U.S.C. 78f(b)(7) and 15 U.S.C. 78f(d)(1).
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Finally, the Commission finds that the proposed rule change is
consistent with the public interest, the protection of investors, or is
otherwise in furtherance of the purposes of the Act, as required by
Rule 19d-1(c)(2) under the Act,\18\ which governs minor rule violation
plans. The Commission believes that the proposed changes to NYSE Amex
Rule 476A will strengthen the Exchange's ability to carry out its
oversight and enforcement responsibilities as a self-regulatory
organization, in cases where full disciplinary proceedings are
unsuitable in view of the nature of a particular violation.
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\18\ 17 CFR 240.19d-1(c)(2).
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In approving this proposed rule change, the Commission emphasizes
that in no way should the amendment of the rule be seen as minimizing
the importance of compliance with Exchange rules and all other rules
subject to the imposition of fines under NYSE Amex Rule 476A. The
Commission believes that the violation of any self-regulatory
organization's rules, as well as Commission rules, is a serious matter.
However, NYSE Amex Rule 476A provides a reasonable means of addressing
rule violations that do not rise to the level of requiring formal
disciplinary proceedings, while providing greater flexibility in
handling certain violations. The Commission expects that the Exchange
will continue to conduct surveillance with due diligence and make a
determination based on its findings, on a case by-case basis, of
whether a violation requires formal disciplinary action under NYSE Amex
Rule 476.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the proposed rule change (SR-NYSEAmex-2012-10) be, and
hereby is, approved.
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\19\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(44).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-9408 Filed 4-18-12; 8:45 am]
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