[Federal Register Volume 78, Number 26 (Thursday, February 7, 2013)]
[Notices]
[Pages 9078-9081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02707]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68803; File No. SR-NSX-2013-06]
Self-Regulatory Organizations; National Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Rule 11.19 To Extend a Pilot Program Regarding Clearly Erroneous
Executions
February 1, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 30, 2013, National Stock Exchange, Inc.
(``NSX[supreg]'' or the ``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 Exchange. The Commission is publishing this notice to solicit
comment 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 extend a pilot program related to Rule
11.19, entitled ``Clearly Erroneous Executions.'' The Exchange also
proposes to adopt new paragraph (j) to Rule 11.19 in connection with
the upcoming operation of the Plan to Address Extraordinary Market
Volatility Pursuant to Rule 608 of Regulation NMS
[[Page 9079]]
under the Act (the ``Limit Up-Limit Down Plan'' or ``Plan'').\3\ The
Exchange has designated this proposal as non-controversial and provided
the Commission with the notice required by Rule 19b-4(f)(6)(iii) under
the Act.\4\
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\3\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down
Release'').
\4\ 17 CFR 240.19b-4(f)(6)(iii).
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The text of the proposed rule change is available on the Exchange's
Web site at http://www.nsx.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 Exchange 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 these 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 purpose of this filing is to extend the effectiveness of the
Exchange's current rule applicable to Clearly Erroneous Executions and
to adopt new paragraph (j) to Rule 11.19 in connection with the
upcoming operation of the Limit Up-Limit Down Plan.
Proposal To Extend Pilot
Portions of Rule 11.19, explained in further detail below, are
currently operating as a pilot program set to expire on February 4,
2013.\5\ The Exchange proposes to extend the pilot program to September
30, 2013.
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\5\ Securities Exchange Act Release No. 67576 (August 2, 2012),
77 FR 47452 (August 8, 2012) (SR-NSX-2012-11).
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On September 10, 2010, the Commission approved, on a pilot basis,
changes to NSX Rule 11.19 to provide for uniform treatment: (1) Of
clearly erroneous execution reviews in multi-stock events involving
twenty or more securities; and (2) in the event transactions occur that
result in the issuance of an individual stock trading pause by the
primary market and subsequent transactions that occur before the
trading pause is in effect on the Exchange.\6\ The Exchange also
adopted additional changes to Rule 11.19 that reduced the ability of
the Exchange to deviate from the objective standards set forth in Rule
11.19.7 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 11.19 that currently
operate as a pilot.
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\6\ Securities Exchange Act Release No. 62886 (September 10,
2010), 75 FR 56613 (September 16, 2010) (SR-NSX-2010-07).
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Proposed Limit Up-Limit Down Provision to Rule 11.19
The Exchange proposes to adopt new paragraph (j) to Rule 11.19, to
provide that the existing provisions of Rule 11.19 will continue to
apply to all Exchange transactions, including transactions in
securities subject to the Plan, other than as set forth in proposed
paragraph (j). 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 11.19 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 11.19(c)(1) 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
the 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
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 (j) would be appealable in
accordance with the provisions of
[[Page 9080]]
Rule 11.19(e)(2). 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 11.19(a)-(i).
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\8\ See Limit Up-Limit Down Release, supra note 3.
\9\ Regular Trading Hours commence at 9:30 a.m. Eastern Time.
See NSX Rule 1.5(R).
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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 Exchange believes that its proposal is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to a national securities exchange, and, in particular,
with the requirements of Section 6(b) of the Act.\10\ In particular,
the proposal is consistent with Section 6(b)(5) of the Act,\11\ because
it would promote just and equitable principles of trade, remove
impediments to, and perfect the mechanism of, a free and open market
and a national market system. 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 help assure that the
determination of whether a clearly erroneous trade has occurred will be
based on clear and objective criteria, and that the resolution of the
incident will occur promptly through a transparent process. The
proposed rule change would also 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. 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 11.19 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.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change
implicates any competitive issues. To the contrary, the Exchange
believes that the Financial Industry Regulatory Authority, Inc.
(``FINRA'') 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
Written comments on the proposed rule change were neither solicited
nor received.
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
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-NSX-2013-06 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-NSX-2013-06. 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
[[Page 9081]]
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-NSX-2013-06 and should be submitted on or before
February 28, 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. 2013-02707 Filed 2-6-13; 8:45 am]
BILLING CODE 8011-01-P