[Federal Register Volume 77, Number 187 (Wednesday, September 26, 2012)]
[Notices]
[Pages 59234-59236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-23634]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67895; File No. SR-NYSEMKT-2012-47]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of
Proposed Rule Change To Amend the NYSE Amex Options LLC Members
Agreement To Empower the Volume Dispute Committee To Establish
Principles for Determining Whether the Exchange Has Experienced a Bona
Fide Systems Problem and To Adjust Certain Volume Measurements
Accordingly
September 20, 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 September 7, 2012, NYSE MKT LLC (the ``Exchange'' or
``NYSE MKT'') filed with
[[Page 59235]]
the Securities and Exchange Commission (the ``Commission'') the
proposed rule change as described in Items I, II, and III 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the NYSE Amex Options LLC Members
Agreement to empower the Volume Dispute Committee to establish
principles for determining whether the Exchange has experienced a bona
fide systems problem and to adjust certain volume measurements
accordingly. The text of the proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, on the Commission's Web site at http://www.sec.gov, and at
the Commission's Public Reference Room.
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the NYSE Amex Options LLC Members
Agreement to empower the Volume Dispute Committee to establish
principles for determining whether the Exchange has experienced a bona
fide systems problem and to adjust certain volume measurements
accordingly.
Background
In 2011, NYSE MKT established NYSE Amex Options LLC (``Company''),
a Delaware limited liability company formed by NYSE Euronext, NYSE MKT,
and seven Founding Firms,\4\ and jointly owned by NYSE MKT and the
Founding Firms, to operate an options facility of the Exchange.\5\ The
governance structure of the Company is reflected in a Limited Liability
Company Agreement and a Members Agreement.
---------------------------------------------------------------------------
\4\ The Founding Firms are Banc of America Strategic Investments
Corporation, Barclays Electronic Commerce Holdings Inc., Citadel
Securities LLC, Citigroup Financial Strategies, Inc., Goldman, Sachs
& Co., Datek Online Management Corp., and UBS Americas Inc.
\5\ Securities Exchange Act Release No. 64742 (June 24, 2011),
76 FR 38436 (June 30, 2011) (SR-NYSEAmex-2011-18).
---------------------------------------------------------------------------
Under Article II, Section 2.1 of the Members Agreement, for a
certain period, each Founding Firm must satisfy certain minimum volume
requirements with respect to trading on the options facility. Under the
Volume-Based Equity Plan, for each measurement period, the Company
issues Annual Incentive Shares. Each Founding Firm is entitled to
receive, for no additional consideration, a portion of the Annual
Incentive Shares such that it dilutes, maintains or increases its
equity interest in the Company (relative to the other Founding Firms)
based on the degree to which the Founding Firm has failed to achieve,
achieved or exceeded its ``Individual Target'' during the measurement
period. A Founding Firm's Individual Target is its pro rata portion of
an aggregate Founding Firm target contribution to the annual volume of
the options facility.
Under Article I, Section 1.1 of the Members Agreement, the
Individual Target is defined as the product of (i) the Founding Firm
aggregate target market share for such measurement period multiplied by
(ii) such Founding Firm's Initial Class B Common Interests multiplied
by (iii) the Industry Volume for such measurement period. Industry
Volume is defined, with respect to any period, as the product of (x)
the aggregate U.S. listed securities option exchange volume of cleared
transactions in the Products (a contract that is listed for trading on
the Exchange) during such period, as reported by the OCC, that are
executed and cleared during such period multiplied by (y) two. However,
Industry Volume excludes (i) the volume of cleared transactions in the
Products during trading days on which trading on the Exchange is halted
for certain periods, and (ii) Strategic Transaction Volume, which is
designed to exclude certain strategy-based transactions.\6\
---------------------------------------------------------------------------
\6\ See Article II, Section 2.1(h) of the Members Agreement.
---------------------------------------------------------------------------
Article II, Section 2.4 of the Members Agreement authorizes the
Company to establish a Volume Dispute Committee, which has 15 members,
one chosen by each of the seven Founding Firms and the remaining eight
chosen by the Exchange. Article II, Section 2.4 empowers the Volume
Dispute Committee to (i) establish principles for determining the types
of transactions for which the Founding Firms are not eligible to
receive credit; (ii) establish principles for determining how
transaction credits should be allocated among or between the Founding
Firms; (iii) review and approve the Strategic Transaction Volume; and
(iv) otherwise determine certain other matters with respect to volume-
related disputes.
Proposed Rule Change
The Exchange believes that if it is experiencing a bona fide
systems problem, then there may be situations in which such volume
should not be included in calculating Individual Targets or Industry
Volume. A bona fide systems problem could include, but is not limited
to, an erroneous input that causes the generation of quotes that are
substantially away from the quoted national best bid and offer or a
problem that causes severe latencies that do not rise to the level of a
trading halt but that interfere with a Founding Firm's ability to quote
or route orders. Because system problems can take many forms and may
not be predictable, the Exchange does not propose to attempt to define
what a systems problem is for this purpose. Rather, the Exchange
believes that the Volume Dispute Committee should be empowered to
establish principles for determining whether a bona fide systems
problem occurred on the options facility and for what time period. The
Exchange believes that providing the Volume Dispute Committee with such
authority will provide the necessary flexibility and structure to
resolve disputes about what volume should be counted in such
situations.\7\
---------------------------------------------------------------------------
\7\ The Exchange notes that while it has procedures for
adjusting or busting certain trades under Rule 957NY [sic], there
may be certain instances in which bona fide systems issues have
occurred but where certain trades fall outside of this Rule or
otherwise are permitted to stand under the Rule, it would be
inequitable to include such trades in calculating Industry Volume or
a Founding Firm's Individual Target.
---------------------------------------------------------------------------
Thus, the Exchange proposes to amend Article II, Section 2.4(a) of
the Members Agreement to empower the Volume Dispute Committee to
establish principles for determining whether the Exchange has
experienced a bona fide systems problem, and the time period of such
bona fide systems problem. In Article 1, Section 1.1 of the Members
Agreement, the Exchange also proposes to amend the definition of
Industry Volume to provide that the computation of volume would exclude
the volume of
[[Page 59236]]
cleared transactions in the Products during a period of time in which
the Exchange experienced a bona fide systems problem. Finally, the
Exchange proposes to amend Section 2.3(a), which establishes a
methodology for determining whether a Founding Firm has met its
Individual Target, to provide that credits would not be awarded for any
transactions executed during a period of time in which the Exchange
experienced a bona fide systems problem.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Securities Exchange Act of 1934 (``Act''),\8\
in general, and furthers the objectives of Section 6(b)(5) of the
Act,\9\ in particular, in that 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 regulating, clearing, settling, processing
information with respect to, and 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. The Exchange believes that
the proposed rule change would promote just and equitable principles of
trade by making the calculations of Individual Target and Industry
Volume fairer by authorizing the Volume Dispute Committee to establish
principles for excluding transactions that occurred while bona fide
systems problems were occurring. The Exchange believes that such
principles will help to foster cooperation among the Founding Firms and
remove impediments to a free and open market, further encouraging the
Founding Firms to bring order flow to the Exchange and thus promoting
liquidity for all investors.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 the 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 No. SR-NYSEMKT-2012-47 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 No. SR-NYSEMKT-2012-47. 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
10:00 a.m. and 3:00 p.m. Copies of such 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 No. SR-NYSEMKT-2012-47 and should be
submitted on or before October 17, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
---------------------------------------------------------------------------
\10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-23634 Filed 9-25-12; 8:45 am]
BILLING CODE 8011-01-P