[Federal Register Volume 77, Number 179 (Friday, September 14, 2012)]
[Notices]
[Pages 56905-56906]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-22636]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67811; File No. SR-NYSEMKT-2012-26]
Self-Regulatory Organizations; NYSE MKT LLC; Order Approving
Proposed Rule Change Amending Rule 76--Equities To Add Supplementary
Material Relating to a Cross Function That Provides a Regulation NMS
Rule 611--Compliant Tool for Floor Brokers
September 10, 2012.
I. Introduction
On July 13, 2012, NYSE MKT LLC (``Exchange'' or ``NYSE MKT '')
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
amending Rule 76--Equities to add supplementary material to provide
Floor Brokers with a new functionality
[[Page 56906]]
through which to effect manual cross transactions of block size. The
proposed rule change was published for comment in the Federal Register
on July 27, 2012.\3\ The Commission received no comment letters
regarding 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. 67489 (July 23,
2012), 77 FR 44294 (``Notice'').
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II. Description of the Proposal
Currently, the Floor Broker and Designated Market Maker (``DMM''),
after announcing a proposed cross transaction to the trading crowd,\4\
must manually monitor the protected best bid or offer to ensure that
the proposed cross can be executed in accordance with the customer's
instructions and in compliance with Rule 611 of Regulation NMS (``Rule
611'').\5\ The Exchange contends that, in today's fast-moving
electronic markets, this manual monitoring process may not be the
optimal manner by which to facilitate and evidence compliance with Rule
611.
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\4\ According to the Exchange, a DMM, on behalf of a Floor
Broker, will enter a cross transaction into the Exchange's Display
Book system as a completed transaction in situations where no one in
the trading crowd otherwise breaks up a proposed cross. The
completed transaction is printed to the consolidated tape (``Tape'')
at that price.
\5\ 17 CFR 242.611. Commission staff has issued guidance
pertaining to the manual execution of orders under staff FAQ 3.23 of
Rule 611 (``FAQ 3.23'').
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Accordingly, the Exchange proposes to add a new Supplementary
Material to Rule 76--Equities.\6\ The proposed Supplementary Material
would allow Floor Brokers to enter a cross transaction into their hand
held device (``HHD''); the Exchange would provide a quote minder
function that would monitor protected bids and offers to determine when
the limit price assigned to the proposed crossed transaction is such
that the orders may be executed consistent with Regulation NMS Rule
611.
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\6\ Rule 76--Equities governs the execution of ``cross'' or
``crossing'' orders by Floor Brokers. Rule 76--Equities applies only
to manual transactions executed at the point of sale on the trading
floor and provides that when a member has an order to buy and an
order to sell the same security that can be crossed at the same
price, the member is required to announce to the trading crowd the
proposed cross by offering the security at a price that is higher
than his or her bid by a minimum variation permitted in the security
before crossing the orders. Any other member, including the
Designated Market Maker (``DMM''), can break up the announced bid
and offer by trading with either side of the proposed cross
transaction. According to the Exchange, an agency ``cross'' of
10,000 shares or more at or between the Exchange best bid or offer
has priority and can only be broken up to provide price improvement
that is better than the cross price as to all or part of such bid or
offer. A buy and sell order to be crossed pursuant to Rule 72(d)--
Equities is subject to Rule 76, including the requirement that such
a proposed cross be announced to the crowd. See Notice, supra note 3
at 44295; see also, Rule 72(d)--Equities.
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When the trade can be effected at or between the protected bid and
offer, the Exchange-provided quote minder will: (i) Deliver an alert
message to the Floor Broker's HHD indicating that the orders may be
crossed; (ii) capture a time-stamped quote within Exchange systems that
includes the time that the alert was sent to the HHD and the protected
bid and offer at that time; (iii) commence a 20-second timer from the
moment a cross trade may be executed at or between the protected and
bid offer; and (iv) enable a print key function in the HHD permitting
the Floor Broker to cross the orders and print the trade through
Exchange systems to the Tape within that 20-second time period.
When the Floor Broker receives the alert message mentioned above,
the Floor Broker must first announce the proposed cross transaction to
the trading crowd; if the crowd or the DMM does not break up the
proposed cross trade, the Floor Broker may then execute the trade using
the print key function of the HHD before the expiration of the 20-
second time period.
The proposed Supplementary Material would require the proposed
cross transaction to consist of at least 10,000 shares or a quantity of
stock having a market value of $200,000 or more. Further, the proposed
cross transaction may not be for the account of the member or member
organization, an account of an associated person, or an account with
respect to which the member, member organization or associated person
exercises investment discretion. The Exchange has represented that this
restriction would help ensure that the functionality would not be used
for affiliated principal order flow.
III. Discussion and Commission Findings
After careful review, 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.\7\
Specifically, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\8\ in that it is designed
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to
and perfect the mechanism for a free and open market and a national
market system and, in general, to protect investors and the public
interest.
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\7\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
\8\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposed Supplementary Material to
Rule 76--Equities removes impediments to and perfects the mechanism of
a free and open market because the proposed cross functionality is
reasonably designed to assist Floor Brokers' ability to cross orders on
the Exchange, particularly if there is significant quote traffic with
flickering prices, while facilitating compliance with the trade-through
restrictions of Rule 611. Given the rapid quotation changes in today's
electronic markets, the Commission believes that it is reasonable to
allow Floor Brokers a 20-second look-back period in which to manually
execute the cross transaction without violating the trade-through rule.
The Commission also notes that the proposal does not otherwise change
the operation of Rule 76--Equities. For example, the Floor Broker is
still required to expose the proposed cross transaction to the trading
crowd, and the proposed cross transaction may be broken up by members
by trading with either side of the proposed transaction during the 20-
second time period.
The Commission further notes that the proposal would bring more
automation to the Exchange, which could support more efficient
executions of the cross transactions. Moreover, because the transaction
terms will be captured in an automated system, the proposed cross
functionality is reasonably designed to provide a better audit trail
for manually crossed orders, which may facilitate review of Floor
Broker transactions for purposes of compliance with Rule 611.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (SR-NYSEMKT-2012-26) be, and it
hereby is, approved.
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\9\ 15 U.S.C. 78s(b)(2).
\10\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-22636 Filed 9-13-12; 8:45 am]
BILLING CODE 8011-01-P