[Federal Register Volume 77, Number 114 (Wednesday, June 13, 2012)]
[Notices]
[Pages 35455-35457]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-14337]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67154; File No. SR-NYSE-2012-10]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Approval of Proposed Rule Change Amending NYSE Rule 107B To
Add a Class of Supplemental Liquidity Providers That Are Registered as
Market Makers at the Exchange
June 7, 2012.
I. Introduction
On April 17, 2012, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') 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 Rule 107B to add a class of
Supplemental Liquidity Providers (``SLP'') that are registered as
market makers at the Exchange. The proposed rule change was published
for comment in the Federal Register on April 23, 2012.\3\ The
Commission received no comment letters on the proposal. This order
approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 66821 (April 17, 2012),
77 FR 24239 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
NYSE Rule 107B was adopted as a pilot program in October 2008 and
established a new class of off-floor market participants referred to as
Supplemental Liquidity Providers or ``SLPs.'' \4\ Approved Exchange
member organizations are eligible to be an SLP. SLPs supplement the
liquidity provided by Designated Market Makers (``DMM''). SLPs have
monthly quoting requirements that may qualify them to receive SLP
rebates, which are larger than the general rebate available to non-SLP
market participants.\5\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 58877 (October 29,
2008), 73 FR 65904 (November 5, 2008) (SR-NYSE-2008-108). The pilot
is currently scheduled to end on July 31, 2012.
\5\ NYSE Rule 107B(a) requires that an SLP maintain a bid and/or
an offer at the national best bid (``NBB'') or national best offer
(``NBO'') averaging at least 10% of the trading day for each
assigned security. In addition, an SLP must provide an average daily
volume (``ADV'') of more than 10 million shares for all assigned SLP
securities on a monthly basis. Meeting this volume requirement will
enable an SLP to receive the basic SLP rebate (currently $0.0020 per
executed share) on security-by-security basis and to maintain their
SLP status.
---------------------------------------------------------------------------
To qualify as an SLP under NYSE Rule 107B(c), a member organization
is subject to a number of conditions, including adequate trading
infrastructure to support SLP trading activity, quoting and volume
performance that demonstrates an ability to meet the 10% ADV
requirement, and use of specified SLP mnemonics. In addition, the
business unit of the member organization acting as an SLP must enter
proprietary orders only and have adequate information barriers between
the SLP unit and any of the member organization's customer, research,
and investment-banking business. Pursuant to NYSE Rule 107B(h)(2)(A), a
DMM may also be an SLP, but not in the same securities in which it is
registered as a DMM.
Proposed SLP Market Makers
The Exchange proposes to amend NYSE Rule 107B to add a category of
SLPs that would be registered as market makers at the Exchange. As
proposed, the term ``SLP'' would refer to member organizations that
provide supplemental liquidity and there would be two classes of SLP.
The existing SLP member organizations and associated requirements would
continue unchanged and would be referred to as ``SLP-Prop.''
The proposed new class of SLP would be referred to as ``SLMM''.
SLMMs would have differing qualification requirements and increased
regulatory obligations as compared to SLP-Props, but would otherwise be
subject to the existing SLP program.
Under the proposal, an SLP can choose to be either an SLP-Prop or
an SLMM. The proposed SLMMs would have different qualification
requirements, specified regulatory obligations, expanded entry of order
requirements, and a security-by-security withdrawal ability. SLP-Props
and SLMMs would be subject to the same application and overall program
withdrawal process, ADV and quoting requirements, manner by which SLP
securities are assigned, and non-regulatory penalties.
To be approved as an SLMM, an SLMM must meet specified regulatory
obligations, which are set forth in proposed NYSE Rule 107B(d). Failure
to comply with these regulatory obligations could result in
disciplinary
[[Page 35456]]
action. First, pursuant to proposed NYSE Rule 107B(d)(1), the SLMM must
maintain a continuous two-sided quotation in those securities in which
the SLMM is registered to trade as an SLP (``Two-Sided Obligation'').
As proposed, the Two-Sided Obligation applicable to SLMMs would be
virtually identical to the market-maker two-sided obligations adopted
by the equities markets in 2010.\6\ Second, pursuant to proposed NYSE
Rule 107B(d)(2), the SLMM would be required to maintain net capital in
accordance with the provisions of Rule 15c3-1 under the Act, which
specifies the capital requirements for market makers.\7\ Finally,
pursuant to proposed NYSE Rule 107B(d)(3), the SLMM would be required
to maintain unique mnemonics specifically dedicated to SLMM activity.
Use of these unique mnemonics will enable SLMMs to meet their
requirement under proposed NYSE Rule 107B(d)(1)(A) to identify their
market-making activity to the Exchange. As proposed, such mnemonics may
not be used for trading in securities other than SLP Securities
assigned to the SLMM.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 63255 (Nov. 5,
2010), 75 FR 69484 (Nov. 12, 2010) (SR-BATS-2010-025; SR-BX-2010-66;
SR-CBOE-2010-087; SR-CHX-2010-22; SR-FINRA-2010-049; SR-NASDAQ-2010-
115; SR-NSX-2010-12; SR-NYSE-2010-69; SR-NYSEAmex-2010-96; and SR-
NYSEArca-2010-83) (order approving enhanced quoting requirements for
market makers).
\7\ 17 CFR 240.15c3-1. For purposes of that rule, the term
``market maker'' is defined as ``a dealer who, with respect to a
particular security, (i) regularly publishes bona fide, competitive
bid and offer quotations in a recognized interdealer quotation
system; or (ii) furnishes bona fide competitive bid and offer
quotations on request; and (iii) is ready, willing and able to
effect transactions in reasonable quantities at his quoted prices
with other brokers or dealers.'' 17 CFR 240.15c3-1(c)(8).
---------------------------------------------------------------------------
Pursuant to NYSE Rule 107B(c)(6), SLPs must currently maintain
adequate information barriers between the SLP unit and the member
organization's customer, research and investment-banking business. This
requirement ensures that the orders submitted by SLPs are proprietary
only, and are not related to any customer-facing business, including
potentially market-making businesses. The Exchange proposes to maintain
this requirement for SLP-Props.
Proposed NYSE Rule 107B(j) would modify the entry of order
requirements. SLP-Prop would continue to be required to enter
proprietary orders only. As proposed, SLMMs would similarly be required
to enter orders for their own account, however, they could be entered
in either a proprietary capacity or a principal capacity on behalf of
an affiliated or unaffiliated person. SLMM could submit SLMM quotes to
the Exchange on behalf of customers, or other unaffiliated or
affiliated persons.
The Exchange proposes to add an additional ability for SLMMs to
voluntarily withdraw from registration as a market maker in a
particular security. Under proposed NYSE Rule 107B(f)(2), an SLMM may
withdraw its registration in a security by giving written notice to the
SLP Liaison Committee and FINRA. As proposed, the Exchange may require
a certain minimum notice period for withdrawal, and may place such
other conditions on withdrawal and re-registration following
withdrawal, as it deems appropriate in the interests of maintaining
fair and orderly markets. An SLMM that fails to give advanced written
notice of termination to the Exchange may be subject to formal
disciplinary action.
Under proposed NYSE Rule 107B(i), an SLP-Prop may not also act as
an SLMM in the same securities in which it is registered as an SLP-Prop
and vice versa. If a member organization has more than one business
unit, and the SLP-Prop business unit is walled off from the SLMM
business unit, the member organization may engage in both an SLP-Prop
and SLMM business from those different business units. Provided there
is no coordinated trading between the SLP-Prop and SLMM business units,
they may be assigned the same securities.
III. Discussion
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.\8\
Specifically, the Commission finds that the proposal is consistent with
Section 6(b)(5) of the Act,\9\ which requires, among other things, that
the rules of a national securities exchange be 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.
---------------------------------------------------------------------------
\8\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission believes that adding an additional registered market
maker program to the Exchange will promote just and equitable
principles of trade as it could potentially expand the number of market
participants providing liquidity at the Exchange, to the benefit of
investors. In particular, the proposal would allow additional market
participants, including member organizations that are registered as
market makers on other exchanges that engage in a customer-facing
business, to participate in the SLP program.
The proposed SLMMs would provide supplemental liquidity in addition
to the liquidity provided by DMMs and SLP-Props, and the Exchange would
continue to require that a DMM be registered in every security listed
on the Exchange. Because the proposed SLMMs would be required to meet
the Two-Sided Obligation applicable to all equities market makers, the
Commission believes that the proposed rule change would also remove
impediments to and perfect the mechanism of a free and open market and
a national market system by increasing the number of market
participants that are required to maintain a continuous two-sided
quotation a specified percentage away from the NBBO in the securities
in which they are registered. Moreover, the proposed SLMM would be
subject to other currently existing requirements.
The Commission finds that the proposal is not unfairly
discriminatory. Registration as an SLP-Prop or SLMM is available to all
Exchange member organizations that satisfy the requirements of proposed
NYSE Rule 107B(c) or (d). The Commission finds further that the
proposal to establish procedures for the registration, withdrawal, and
disqualification of SLMM, and the SLMM quoting requirements, are
consistent with the requirements of Section 6(b)(5) of the Act. The
Exchange's proposed rules provide an objective process by which a
member organization could become a SLMM and for appropriate oversight
by the Exchange to monitor for continued compliance with the terms of
these provisions. The Commission also notes that these provisions are
similar to the existing provisions that apply to the current SLP
program.
In addition, the Commission believes that the proposed rule change
is consistent with the requirements of the Act because the proposed
requirements for the SLMMs are based on existing, approved requirements
for registered market makers on other exchanges. In addition to the
Two-Sided Obligation, the proposed SLMMs would also be required to
assist in the maintenance of a fair and orderly market, as reasonably
practicable, and maintain net capital
[[Page 35457]]
consistent with federal requirements for market makers.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-NYSE-2012-10) be, and it
hereby is, approved.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
---------------------------------------------------------------------------
\11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14337 Filed 6-12-12; 8:45 am]
BILLING CODE 8011-01-P