[Federal Register Volume 78, Number 25 (Wednesday, February 6, 2013)]
[Notices]
[Pages 8630-8633]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02640]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68801; File No. SR-NYSEMKT-2013-11]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Rule 128--
Equities, Which Governs Clearly Erroneous Executions, Extending the
Effective Date of the Pilot Until September 30, 2013 and Adopting New
Paragraph (i) to Rule 128-Equities in Connection With the Upcoming
Operation of the Plan To Address Extraordinary Market Volatility
Pursuant to Rule 608 of Regulation NMS Under the Act
February 1, 2013.
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 January 30, 2013, NYSE MKT LLC (the ``Exchange'' or
``NYSE MKT'') filed with the Securities and Exchange Commission (the
``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\ 15 U.S.C. 78a.
\3\ 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 128--Equities, which governs
clearly erroneous executions, to extend the effective date of the pilot
by which portions of such Rule operate until September 30, 2013. The
pilot is currently scheduled to expire on February 4, 2013. The
Exchange also proposes to adopt new paragraph (i) to Rule 128--Equities
in connection with the upcoming operation of the Plan to Address
Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS
under the Act (the ``Limit Up-Limit Down Plan'' or ``Plan'').\4\ 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.
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\4\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down
Release'').
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[[Page 8631]]
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 128--Equities, which governs
clearly erroneous executions, to extend the effective date of the pilot
by which portions of such Rule operate, until September 30, 2013. The
pilot is currently scheduled to expire on February 4, 2013.\5\ The
Exchange also proposes to add new paragraph (i) to Rule 128--Equities
in connection with the upcoming implementation of the Limit Up-Limit
Down Plan.
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\5\ See Securities Exchange Act Release No. 62886 (September 10,
2010), 75 FR 56613 (September 16, 2010) (SR-NYSEAmex-2010-60). See
also Securities Exchange Act Release Nos. 63480 (December 9, 2010),
75 FR 78333 (December 15, 2010) (SR-NYSEAmex-2010-116); 64233 (April
7, 2011), 76 FR 20736 (April 13, 2011) (SR-NYSEAmex-2011-24); 65066
(August 9, 2011), 76 FR 50506 (August 15, 2011) (SR-NYSEAmex-2011-
58); 66137 (January 11, 2012), 77 FR 2587 (January 18, 2012) (SR-
NYSEAmex-2011-106); and 67567 (August 1, 2012), 77 FR 47136 (August
7, 2012) (SR-NYSEMKT-2012-28).
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On September 10, 2010, the Commission approved, on a pilot basis,
market-wide amendments to exchanges' rules for clearly erroneous
executions to set forth clearer standards and curtail discretion with
respect to breaking erroneous trades. In connection with this pilot
initiative, the Exchange amended Rule 128(c), (e)(2), (f), and (g)--
Equities. The amendments provide for uniform treatment of clearly
erroneous execution reviews (1) in Multi-Stock Events \6\ involving
twenty or more securities, and (2) in the event transactions occur that
result in the issuance of an individual security trading pause by the
primary market and subsequent transactions that occur before the
trading pause is in effect on the Exchange.\7\ The amendments also
eliminated appeals of certain rulings made in conjunction with other
exchanges with respect to clearly erroneous transactions and limited
the Exchange's discretion to deviate from Numerical Guidelines set
forth in the Rule in the event of system disruptions or malfunctions.
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\6\ Terms not defined herein are defined in Rule 128--Equities.
\7\ Separately, the Exchange has proposed to extend the
effective date of the trading pause pilot under Rule 80C--Equities,
which requires to the Exchange to pause trading in an individual
security listed on the Exchange if the price moves by a specified
percentage as compared to prices of that security in the preceding
five-minute period during a trading day. See Securities Exchange Act
Release No. 68744 (January 28, 2013) (SR-NYSEMKT-2012-04) [sic].
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If the pilot were not extended, the prior versions of paragraphs
(c), (e)(2), (f), and (g) of Rule 128--Equities would be in effect, and
the Exchange would have different rules than other exchanges and
greater discretion in connection with breaking clearly erroneous
transactions. The Exchange believes the benefits to market participants
from the more objective clearly erroneous executions rule should
continue on a pilot basis through September 30, 2013, which is the date
that the Exchange anticipates that the phased implementation of the
Limit Up-Limit Down Plan will be complete. As explained in further
detail below, although the Limit Up-Limit Down Plan is intended to
prevent executions that would need to be nullified as clearly
erroneous, the Exchange believes that certain protections should be
maintained while the industry gains initial experience operating with
the Limit Up-Limit Down Plan, including the provisions of Rule 128--
Equities that currently operate as a pilot.
Proposed Limit Up-Limit Down Provision to Rule 128--Equities
The Exchange proposes to adopt new paragraph (i) to Rule 128--
Equities, to provide that the existing provisions of Rule 128--Equities
will continue to apply to all Exchange transactions, including
transactions in securities subject to the Plan, other than as set forth
in proposed paragraph (i). Accordingly, other than as proposed below,
the Exchange proposes to maintain and continue to apply the Clearly
Erroneous Execution standards in the same way that it does today.
Notably, this means that the Exchange might nullify transactions that
occur within the price bands disseminated pursuant to the Limit Up-
Limit Down Plan to the extent such transactions qualify as clearly
erroneous under existing criteria. As an example, assume that a Tier 1
security pursuant to the Plan has a reference price pursuant to both
the Plan and Rule 128--Equities of $100.00. The lower pricing band
under the Plan would be $95.00 and the upper pricing band under the
Plan would be $105.00. An execution could occur on the Exchange in this
security at $96.00, as this is within the Plan's pricing bands.
However, if subjected to review as potentially clearly erroneous, the
Exchange would nullify an execution at $96.00 as clearly erroneous
because it exceeds the 3% threshold that is in place pursuant to Rule
128(c)(1)--Equities for securities priced above $50.00 (i.e., with a
reference price of $100.00, any transactions at or below $97.00 or
above $103.00 could be nullified as clearly erroneous). Accordingly,
this proposal maintains the status quo with respect to reviews of
Clearly Erroneous Executions and the application of objective numerical
guidelines by the Exchange. The proposal does not increase the
discretion afforded to the Exchange in connection with reviews of
Clearly Erroneous Executions.
The Limit Up-Limit Down Plan is designed to prevent executions from
occurring outside of dynamic price bands disseminated to the public by
a single plan processor as defined in the Limit Up-Limit Down Plan.\8\
The possibility remains that the Exchange could experience a technology
or systems problem with respect to the implementation of the price
bands disseminated pursuant to the Plan. To address such possibilities,
the Exchange proposes to adopt language to make clear that if an
Exchange technology or systems issue results in any transaction
occurring outside of the price bands disseminated pursuant to the Plan,
an Officer of the Exchange or senior level employee designee, acting on
his or her own motion or at the request of a third party, shall review
and declare any such trades null and void. Absent extraordinary
circumstances, any such action of the Officer of the Exchange or other
senior level employee designee shall be taken in a timely fashion,
generally within thirty (30) minutes of the detection of the erroneous
transaction. When extraordinary circumstances exist, any such action of
the Officer of the Exchange or other senior level employee designee
must be taken by no later than the start of regular trading hours \9\
on the trading day following the date on which the execution(s) under
review occurred. Although the Exchange will act as
[[Page 8632]]
promptly as possible and the proposed objective standard (i.e., whether
an execution occurred outside the band) should make it feasible to
quickly make a determination, there may be circumstances in which
additional time may be needed for verification of facts or coordination
with outside parties, including the single plan processor responsible
for disseminating the price bands and other market centers.
Accordingly, the Exchange believes it necessary to maintain some
flexibility to make a determination outside of the thirty (30) minute
guideline. In addition, the Exchange proposes that a transaction that
is nullified pursuant to new paragraph (i) would be appealable in
accordance with the provisions of Rule 128(e)(2)--Equities. In
addition, the Exchange proposes to make clear that in the event that a
single plan processor experiences a technology or systems problem that
prevents the dissemination of price bands, the Exchange would make the
determination of whether to nullify transactions based on Rule 128(a)-
(h)--Equities.
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\8\ See Limit Up-Limit Down Release, supra note 4.
\9\ Regular trading hours commence at 9:30 a.m. Eastern Time.
See Rule 51(a)--Equities.
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The Exchange believes that cancelling trades that occur outside of
the price bands disseminated pursuant to the Plan is consistent with
the purpose and intent of the Plan, as such transactions are not
intended to occur in the first place. If transactions do occur outside
of the price bands and no exception applies--which necessarily would be
caused by a technology or systems issue--then the Exchange believes the
appropriate result is to nullify such transactions.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \10\ of
the Act, in general, and furthers the objectives of Section 6(b)(5)
\11\ 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. The Exchange believes that the pilot program promotes
just and equitable principles of trade in that it promotes transparency
and uniformity across markets concerning review of transactions as
clearly erroneous. More specifically, the Exchange believes that the
extension of the pilot would promote just and equitable principles of
trade because it would help assure that the determination of whether a
clearly erroneous trade has occurred will be based on clear and
objective criteria. Additionally, resolution of the incident will occur
promptly through a transparent process, which the Exchange believes
would protect investors and the public interest. The proposed rule
change would also foster cooperation and coordination with persons
engaged in facilitating transactions in securities and to remove
impediments to, and perfect the mechanism of, a free and open market
and a national market system because it would help assure consistent
results in handling erroneous trades across the U.S. markets, thus
furthering fair and orderly markets, the protection of investors and
the public interest.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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Although the Limit Up-Limit Down Plan will be operational during
the same time period as the proposed extended pilot, the Exchange
believes that maintaining the pilot for at least through the phased
implementation of the Plan is operational will help to protect against
unanticipated consequences. To that end, the extension will allow the
Exchange to determine whether Rule 128--Equities is necessary once the
Plan is operational and, if so, whether improvements can be made.
Further, the Exchange believes it consistent with the protection of
investors and the public interest to adopt objective criteria to
nullify transactions that occur outside of the Plan's price bands when
such transactions should not have been executed but were due to a
systems or technology issue.
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. To the contrary, the
Exchange believes that the Financial Industry Regulatory Authority and
other national securities exchanges are also filing similar proposals,
and thus, that the proposal will help to ensure consistent rules across
market centers.
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
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 for 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 \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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A proposed rule change filed under Rule 19b-4(f)(6)\14\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii)\15\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing.
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\14\ 17 CFR 240.19b-4(f)(6).
\15\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest, as
it will allow the pilot program to continue uninterrupted, thereby
avoiding the investor confusion that could result from a temporary
interruption in the pilot program. For this reason, the Commission
designates the proposed rule change to be operative upon filing.\16\
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\16\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the 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
[[Page 8633]]
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-2013-11 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-2013-11. 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 the 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-2013-11 and should
be submitted on or before February 27, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02640 Filed 2-5-13; 8:45 am]
BILLING CODE 8011-01-P