[Federal Register Volume 78, Number 26 (Thursday, February 7, 2013)]
[Notices]
[Pages 9100-9102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02712]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68818; File No. SR-BX-2013-010]
Self-Regulatory Organizations; NASDAQ OMX BX Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Extend
a Pilot Program Related to Rule 11890, entitled ``Clearly Erroneous
Transactions''
February 1, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given
that on January 31, 2013, NASDAQ OMX BX, Inc. (``Exchange'' or ``BX'')
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 Exchange. 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
BX is filing with the Commission a proposal to extend a pilot
program related to Rule 11890, entitled ``Clearly Erroneous
Transactions.'' The Exchange also proposes to adopt new paragraph (g)
to Rule 11890 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'').\3\
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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'').
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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 aspects 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 Transactions
and to adopt new paragraph (g) to Rule 11890 in connection with
upcoming operation of the Limit Up-Limit Down Plan.
Proposal To Extend Pilot
Portions of Rule 11890, explained in further detail below, are
currently operating as a pilot program set to expire on February 4,
2013.\4\ The Exchange proposes to extend the pilot program to September
30, 2013.
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\4\ See Securities Exchange Act Release No. 67570 (August 2,
2012), 77 FR 47486 (August 8, 2012) (SR-BX-2012-056).
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On September 10, 2010, the Commission approved, on a pilot basis,
changes to Exchange Rule 11890 to provide for uniform treatment: (1) Of
clearly erroneous transaction 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
[[Page 9101]]
subsequent transactions that occur before the trading pause is in
effect on the Exchange.\5\ The Exchange also adopted additional changes
to Rule 11890 that reduced the ability of the Exchange to deviate from
the objective standards set forth in Rule 11890.\6\ The Exchange
believes the benefits to market participants from the more objective
clearly erroneous transactions 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 transactions 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 11890 that currently operate as a
pilot.
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\5\ See Securities Exchange Act Release No. 63490 (December 9,
2010), 75 FR 78299 (December 15, 2010) (SR-BX-2010-086).
\6\ Id.
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Proposed Limit Up-Limit Down Provision to Rule 11890
The Exchange proposes to adopt new paragraph (g) to Rule 11890, to
provide that the existing provisions of Rule 11890 will continue to
apply to all Exchange transactions, including transactions in
securities subject to the Plan, other than as set forth in proposed
paragraph (g). Accordingly, other than as proposed below, the Exchange
proposes to maintain and continue to apply the Clearly Erroneous
Transaction 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 11890 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 11890(a)(2)(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
Transactions 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
Transactions.
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.\7\ 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, a Senior Official of the Exchange, 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 Senior Official of the Exchange 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 Senior Official of the Exchange must be taken by
no later than the start of Regular Trading Hours \8\ 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 (g)
would be appealable in accordance with the provisions of Rule 11890(c).
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
11890(a)-(f).
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\7\ See Limit Up-Limit Down Release, supra note 3.
\8\ Regular Trading Hours commence at 9:30 a.m. Eastern Time.
See Exchange Rule 11890(a)(2)(B).
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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.\9\ In particular, the
proposal is consistent with Section 6(b)(5) of the Act,\10\ 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
[[Page 9102]]
consequences. To that end, the extension will allow the Exchange to
determine whether Rule 11890 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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\9\ 15 U.S.C. 78f(b).
\10\ 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 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
No written comments were either solicited or 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 \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 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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The Exchange has asked the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. 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.\13\
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\13\ 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-BX-2013-010 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-BX-2013-010. 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 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 offices 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-BX-2013-010, and should be submitted on or before
February 28, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02712 Filed 2-6-13; 8:45 am]
BILLING CODE 8011-01-P