[Federal Register Volume 77, Number 236 (Friday, December 7, 2012)]
[Notices]
[Pages 73106-73109]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-29567]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68340; File No. SR-NYSEMKT-2012-65]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Rule
123C(9)(a)(1)(ii)--Equities To Delete the Requirement That the Order
Acceptance Cut-Off Time Cannot Be Past 4:30 p.m.
December 3, 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
on November 20, 2012, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'') filed
with the
[[Page 73107]]
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 Rule 123C(9)(a)(1)(ii)--Equities 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.
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)--Equities 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 New York Stock Exchange LLC (``NYSE''). See
Securities Exchange Act Release No. 68282 (Nov. 21, 2012), 77 FR
71023 (Nov. 28, 2012) (SR-NYSE-2012-63).
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Background
Pursuant to Rule 123C(9)(a)(1)--Equities, the Exchange may suspend
Rule 52--Equities (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)--Equities 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)--Equities, 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, which
has an identical rule, have invoked the relief available pursuant to
the Rule only once, on September 21, 2012. In 2010, Rule
123C(9)(a)(1)--Equities was invoked only three times on both markets.
Proposed Amendment
The Exchange proposes to amend Rule 123C(9)(a)(1)(ii)--Equities 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 on both the Exchange and the
NYSE, the NYSE 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)--Equities in the first instance, together with what the
NYSE has experienced in those few events with its parallel rule, 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, an NYSE-listed
security, 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 NYSE Rule 123C(9)(a)(1). Due to the complexity
of the situation, the NYSE 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 NYSE accepted order flow past the 4:30 p.m. order
acceptance cut-off time. The NYSE filed with the Commission a rule
proposal that permitted the temporary suspension of NYSE 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), an NYSE-listed
security, that could not be satisfied by sell orders on the Book.
Accordingly, the NYSE invoked procedures pursuant to NYSE 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 NYSE 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,
[[Page 73108]]
unchanged from the last sale price of $13.54.\5\
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\5\ On September 27, 2012, the NYSE 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 NYSE did not have rule authority to extend the order
acceptance cut-off time in the WFT closing situation to 4:35 p.m., the
NYSE 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 NYSE experienced with respect to its web
and email system was unanticipated and the NYSE 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 NYSE had adhered to the 4:30 p.m. cut-
off time, the NYSE would not have been able to complete its
solicitation of offsetting 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.\6\
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\6\ The Exchange proposes to make clarifying changes to
paragraphs (a)(1), (a)(1)(v), (a)(2), and (b) of Rule 123C(9)--
Equities and Supplementary Material .20 and .30 to Rule 123C--
Equities to either add the phrase ``Equities'' or delete the term
``NYSE'' in connection with references to other equity rules in the
rule text.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \7\ of the
Securities Exchange Act of 1934 (the ``Act''), in general, and furthers
the objectives of Section 6(b)(5),\8\ 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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\7\ 15 U.S.C. 78f(b).
\8\ 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 \9\ and Rule 19b-4(f)(6) thereunder.\10\
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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\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\ 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-NYSEMKT-2012-65 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-NYSEMKT-2012-65. This
file number should be included on the
[[Page 73109]]
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-NYSEMKT-2012-65 and should be submitted on or before
December 28, 2012.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29567 Filed 12-6-12; 8:45 am]
BILLING CODE 8011-01-P