[Federal Register Volume 77, Number 229 (Wednesday, November 28, 2012)]
[Notices]
[Pages 71023-71025]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-28798]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68282; File No. SR-NYSE-2012-63]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending NYSE Rule 123C(9)(a)(1)(ii) To Delete the Requirement That the
Order Acceptance Cut-Off Time Cannot Be Past 4:30 p.m.
November 21, 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
November 8, 2012, 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 self-regulatory
organization. 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 amend NYSE Rule 123C(9)(a)(1)(ii) to
delete the requirement that the order acceptance cut-off time cannot be
past 4:30 p.m. 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, 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.
[[Page 71024]]
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 Rule 123C(9)(a)(1)(ii) to delete the
requirement that the order acceptance cut-off time cannot be past 4:30
p.m. (or 30 minutes after the scheduled close in the case of an earlier
close).\3\
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\3\ The Exchange notes that parallel changes are proposed to be
made to the rules of NYSE MKT LLC. See SR-NYSEMKT-2012-65.
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Background
Pursuant to Rule 123C(9)(a)(1), the Exchange may suspend Rule 52
(Hours of Operation) to resolve an extreme order imbalance that may
result in a price dislocation at the close as a result of an order
entered into Exchange systems, or represented to a Designated Market
Maker (``DMM'') orally at or near the close. Rule 123C(9)(a)(1) was
intended to be and has been invoked to attract offsetting interest in
rare circumstances where there exists an extreme imbalance at the close
such that a DMM is unable to close the security without significantly
dislocating the price.
Pursuant to Rule 123C(9)(a)(1)(ii), once it has been determined to
suspend Rule 52 and solicit offsetting interest, the Exchange is
responsible for soliciting such offsetting interest from both on-Floor
and off-Floor participants. Such solicitation requests include, at a
minimum, the security symbol, the imbalance amount and side, the last
sale price, and an order acceptance cut-off time. The Exchange
designates the order acceptance cut-off time, but the Rule currently
provides that in no event shall the order acceptance cut-off time be
later than 4:30 p.m. (or 30 minutes after the scheduled close in the
case of an earlier close).
Currently, the Exchange uses Trader Updates to solicit interest
from off-Floor participants. The Exchange's Trader Updates are posted
on the Exchange's Web site and are distributed both by RSS feed and by
email to anyone who subscribes to receive such free updates.
Since January 3, 2011, when the Rule, which was previously operated
on a pilot bases, became a permanent rule, the Exchange and NYSE MKT
LLC (``NYSE MKT''), which has an identical rule for its equity market,
have invoked the relief available pursuant to the Rule only once, on
September 21, 2012. In 2010, Rule 123C(9)(a)(1) was invoked only three
times on both markets.
Proposed Amendment
The Exchange proposes to amend Rule 123C(9)(a)(1)(ii) to delete the
requirement that the order acceptance cut-off time shall be no later
than 4:30 p.m., or in the case of an early scheduled close, 30 minutes
after the closing time. The Exchange believes it is appropriate to
delete the bright-line cut off time because it hinders the ability of
the Exchange to ensure a fair and orderly close if adhering to the 4:30
p.m. order acceptance cut-off time is not possible under the particular
circumstances.
In particular, the Exchange notes that for two of the four times
that the rule has been invoked since 2010, the Exchange has extended
the order acceptance cut-off time past 4:30 p.m. The reasons for the
extensions differed, but the Exchange believes that given the rarity of
the need to invoke the provisions of Rule 123C(9)(a)(1) in the first
instance, together with what the Exchange has experienced in those few
events, it is appropriate to delete the bright-line 4:30 p.m. cut-off
time.
For example, on February 12, 2010, due to corporate actions in
Berkshire Hathaway (BRK) Class A and B securities, there was
significant trading volume in those securities, including at the close.
In the circumstances, it was determined that the most efficient manner
to effect the close of trading in those securities was to effect the
closing transaction in BRK-B before closing the BRK-A shares. After
closing the BRK-B security at 4:19 p.m., the DMM assessed the shares
eligible to be executed for the BRK-A close and determined that the
imbalance was significant enough to invoke the procedures of Rule
123C(9)(a)(1). Due to the complexity of the situation, the Exchange was
not able to issue its solicitation of offsetting interest until 4:27
p.m. Because three minutes was not sufficient time to receive incoming
offsetting interest and close the security, the Exchange accepted order
flow past the 4:30 p.m. order acceptance cut-off time. The Exchange
filed with the Commission a rule proposal that permitted the temporary
suspension of the Rule 123C(9)(a)(1)(ii) 4:30 p.m. order acceptance
cut-off time.\4\
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\4\ See Securities Exchange Act Release No. 61549 (Feb. 19,
2010), 75 FR 9009 (Feb. 26, 2010) (SR-NYSE-2010-09).
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More recently, on Friday, September 21, 2012, there was a buy
imbalance in Weatherford International LTD (WFT) that could not be
satisfied by sell orders on the Book. Accordingly, the Exchange invoked
procedures pursuant to Rule 123C(9) to solicit interest from both off-
Floor and on-Floor participants to offset that imbalance. While the
Exchange initiated publication of solicitation for such offsetting
interest immediately following 4:00 p.m., due to delays in the
Exchange's web and email systems, the Exchange's two solicitations of
interest, which were sent at 4:22 p.m. and 4:28 p.m., did not leave
Exchange systems until 4:29 p.m. and 4:35 p.m., respectively, and were
time-stamped accordingly. Because of these delays, the Exchange
extended the order acceptance cut-off time to 4:35 p.m., which is past
the time prescribed in Rule 123C(9)(a)(1)(ii). By extending the order
acceptance cut-off time to 4:35 p.m., the Exchange was able to attract
sufficient sell-side interest to offset the buy imbalance and the stock
was closed shortly thereafter on a transaction of 7.822 million shares,
unchanged from the last sale price of $13.54.\5\
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\5\ On September 27, 2012, the Exchange published a Trader
Update that provided the public with notice of this issue: http://traderupdates.nyse.com/2012/09/weatherford_international_ltd.html.
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Although the Exchange did not have rule authority to extend the
order acceptance cut-off time in the WFT closing situation to 4:35
p.m., the Exchange believes that it acted appropriately under the
circumstances to ensure that WFT could close in a fair and orderly
manner at a price that was not significantly dislocated from the last
sale price. In particular, the issue that the Exchange experienced with
respect to its web and email system was unanticipated and the Exchange
sought to respond in a manner that protected investors and the public
interest by ensuring a fair and orderly close.
The Exchange believes it is appropriate to provide the Exchange
with authority to designate an order acceptance cut-off time that is
tailored to the particular situation, rather than have to adhere to the
4:30 p.m. time frame. The Exchange's ultimate goal is to ensure a fair
and orderly close in a manner that is as close to the official 4:00
p.m. closing time as possible. However, depending on the circumstances,
whether because of the complexity of the closing process for a
particular security or because of a system or technology issue,
requiring a bright-line order acceptance time may not be appropriate.
Moreover, the Exchange believes that adhering to such a bright-line
cut-off time could harm investors and the public. For example, in both
the BRK-A and WFT closes, if the Exchange had adhered to the 4:30 p.m.
cut-off time, the Exchange would not have been able to complete its
solicitation of offsetting
[[Page 71025]]
interest. Without such offsetting interest, the Exchange had two
alternatives, either close the stock at a price significantly
dislocated from the last sale price, or invoke an order imbalance halt
and not hold a closing transaction. The Exchange does not believe that
either alternative is in the best interest of investors or the public.
Rather, the Exchange believes that ensuring that the closing price is
not significantly dislocated from the last sale, even if that means a
delayed closing time, would benefit investors and the public.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \6\ of the
Securities Exchange Act of 1934 (the ``Act''), in general, and furthers
the objectives of Section 6(b)(5),\7\ 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 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, and it is not designed to
permit unfair discrimination among customers, brokers, or dealers.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes that providing the Exchange
with the authority to designate the order cut-off time as appropriately
tailored to the particular situation removes impediments to and
perfects the mechanism of a free and open market because it enables the
Exchange to complete the process to solicit interest to offset an
imbalance at the close that would otherwise result in a significant
price dislocation. Without the relief requested herein, the Exchange
may not be able to complete the process to solicit offsetting interest,
which would result in either the stock closing at a dislocated price,
or require the Exchange to invoke an order imbalance halt in the
security. The Exchange believes such solutions could harm investors and
the public because of either an unnecessarily dislocated closing price,
or in the case of an imbalance halt, orders intended for the closing
transaction would not be executed. The Exchange further believes that
the proposed rule change would protect investors and the public
interest because it would enable the Exchange to complete the process
to ensure that the closing price that may be closer to the last sale
price, rather than a closing price that is significantly dislocated
from the last sale price.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\
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 and Rule 19b-
4(f)(6)(iii) thereunder.
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\8\ 15 U.S.C. 78s(b)(3)(A)(iii).
\9\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of such 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 [email protected]. Please include
File Number SR-NYSE-2012-63 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-2012-63. 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 Number SR-NYSE-2012-63 and should be
submitted on or before December 19, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28798 Filed 11-27-12; 8:45 am]
BILLING CODE 8011-01-P