[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21457-21460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08321]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69295; File No. SR-NYSE-2013-27]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending NYSE Rule 1000
April 4, 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 April 2, 2013, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') 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 phase out the functionality associated
with liquidity replenishment points (``LRPs'') to coincide with the
implementation of the Limit Up--Limit Down Plan (the ``Plan'') by
adding language to NYSE Rule 1000 that, beginning on April 8, 2013,
LRPs will no longer be in effect for Tier 1 NMS Stocks, and on the
earlier of August 1, 2013 or such date as Phase II of the Limit Up--
Limit Down Plan is implemented, LRPs will no longer be in effect for
all NMS Stocks. The text of the proposed rule change is
[[Page 21458]]
available on the Exchange's Web site at www.nyse.com, at the principal
office of the Exchange, on the Commission's Web site at http://www.sec.gov, 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to phase out the functionality associated
with LRPs to coincide with the implementation of the Plan by amending
Rule 1000 to provide that, beginning on April 8, 2013, LRPs will no
longer be in effect for Tier 1 NMS Stocks, and beginning on the earlier
of August 1, 2013 or such date as Phase II of the Limit Up--Limit Down
Plan is implemented, LRPs will no longer be in effect for all NMS
stocks.
The LRP mechanism was approved in 2006 to address market volatility
on the Exchange.\4\ Specifically, the Exchange uses LRPs, which are
triggered by rapid price movements over a short period of time, to
moderate volatility in a security by temporarily converting the
electronic market for the security into an auction market to afford new
trading interests the opportunity to add liquidity. The Exchange
additionally believes that LRPs were effective in moderating some of
the impact from the events of May 6, 2010, for NYSE trading customers
as evidenced by the lack of erroneous trades on the Exchange. LRPs also
served as the basis for the Plan,\5\ as well as the implementation of
the short sale circuit breakers. Indeed, for many years, LRPs have been
a key selling point of the Exchange to both investors and listed
companies who, like the Exchange, believe that stable prices further
the purposes of protecting investors against unnecessary price swings
thereby enhancing investor confidence in the U.S. securities markets.
LRPs have delivered concrete benefits to public investors in the many
erroneous or aberrant trades they have prevented, and have allowed the
Exchange to communicate in an orderly way with issuers during periods
of market stress.
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\4\ See Securities Exchange Act Release No. 53539 (March 22,
2006), 71 FR 16353 (March 31, 2006) (SR-NYSE-2004-05).
\5\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (``LULD Release'').
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Nevertheless, the Exchange proposes to phase out LRPs as a result
of the scheduled implementation of the Plan, which was adopted in
response to the market disruption of May 6, 2010. Specifically, in
addressing comments focused on the relationship between the Plan and
exchange-specific volatility mechanisms--such as the NYSE's LRPs--the
Commission stated that it was ``aware of the potential for unnecessary
complexity that could result if the Plan were adopted, and exchange-
specific volatility mechanisms were retained'' and ``[t]o this end, the
Commission expects that upon implementation of the Plan, such exchange-
specific volatility mechanisms would be discontinued by the respective
exchanges.'' \6\
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\6\ Id. at n. 182 (emphasis added).
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Although the Exchange understands the need for industry-wide
responses to address extraordinary volatility events such as the market
disruption that occurred on May 6, 2010, the Exchange does not agree
that such initiatives should come at the expense of existing investor
protection mechanisms, particularly without any impact analysis,
because such initiatives can have unintended consequences to the
detriment of investors and the marketplace as a whole. In light of the
fact that only potential concerns were noted and there is no evidence
of systemic problems that would be caused by simultaneously operating
the Plan and LRPs, the Exchange continues to believe that data could
have been collected during the Plan pilot period and would have served
as an excellent testing ground to determine if both the Limit Up--Limit
Down bands as well as the LRP bands could function effectively
together. The Exchange believes that only after such careful monitoring
could an informed determination be made that accurately assesses
whether the functionalities were redundant or conflicting so as to
warrant continuing with one or the other, or both. The Plan pilot
period could also have afforded the Commission and the Exchange the
ability to compile and analyze data that would contribute to the making
of an informed decision with respect to the merits of both programs.
Indeed, there is nothing particularly complex about how LRPs would
have operated alongside the Plan. As the LRP bands are generally
narrower than the Limit Up--Limit Down bands, LRPs might have continued
to serve their current purpose of creating a temporary auction market
buffer to rapid and extraordinary price movements occurring in the
electronic market. They would have been triggered within Limit Up--
Limit Down bands, would have applied only to the Exchange, and trading
on away markets could have continued to occur because the NYSE
quotation is not protected during an LRP. Moreover, the Exchange
believes that any incremental complexity the LRPs would have added to
the operation of the Plan would have been outweighed substantially by
their proven effectiveness in minimizing rapid price movements that are
driven by erroneous orders.
Furthermore, the Exchange wishes to respectfully, but strenuously,
object not only to the substance of the Commission's decision to
effectively insist that the Exchange abandon LRPs, but also the policy
implications of the decision. From a policy perspective, the
Commission's required removal of LRPs would seem to embody an effort to
force markets ``into a single mold'' \7\ for purposes of addressing
extraordinary volatility, and to obstruct the development of
``subsystems within the national market system,'' objectives which are
inconsistent with the 1975 Act Amendments.\8\
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\7\ See H.R. Rep. No. 94-123, at 51 (1975) (emphasis added)
(``The objective is to enhance competition and to allow economic
force, interacting within a fair regulatory field, to arrive at
appropriate variations of practices and services. Neither the
markets themselves nor the broker-dealer participant in these
markets should be forced into a single mold. Market centers should
compete and evolve according to their own natural genius and all
actions to compel uniformity must be measured and justified as
necessary to accomplish the salient purposes of the Securities
Exchange Act, assure the maintenance of fair and orderly markets and
to provide price protection for the orders of investors.'').
\8\ See S. Rep. No. 94-75 (1975). While there is no disputing
that Congress intended to grant broad and discretionary market
oversight powers to the Commission, it is also important to
recognize the intended limits of that discretion. The Senate
Committee Report sheds particular light on those limits with respect
to uniformity of structure: ``This is not to say that it is the goal
of the legislation to ignore or eliminate distinctions between
exchange markets and over-the-counter markets or other inherent
differences or variations in components of a national market system.
Some present distinctions may tend to disappear in a national market
system, but it is not the intention of the bill to force all markets
for all securities into a single mold. Therefore, in implementing
the bill's objectives, the SEC would have the power to classify
markets, firms, and securities in any manner it deems necessary or
appropriate in the public interest or for the protection of
investors and to facilitate the development of subsystems within the
national market system.'' See id. at 7 (emphasis added).
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[[Page 21459]]
Nevertheless, the Exchange proposes to phase out \9\ the LRP
functionality for securities as they are covered by the Plan in
coordination with the Plan's Phase I and Phase II implementation
timelines.\10\ LRPs will remain in place for any securities not covered
by the Plan.
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\9\ The Exchange would note that the suspension, rather than the
elimination thereof, of LRPs for the duration of the pilot period
would not be put before the Commission for consideration.
\10\ See, e.g., Securities Exchange Act Release No. 68785
(January 31, 2013), 78 FR 8646 (February 6, 2013) (SR-NYSEArca-2013-
06).
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As such, the Exchange proposes to add rule language that, beginning
on April 8, 2013, LRPs will no longer be in effect for Tier 1 NMS
Stocks, and on the earlier of August 1, 2013 or such date as Phase II
of the Limit Up--Limit Down Plan is implemented, LRPs will no longer be
in effect for all NMS Stocks. In order to accommodate the phasing out
process, prior to the implementation of Phase II of the Plan, the
Exchange will file a separate rule proposal deleting the references to
LRP functionality in NYSE Rules 60, 79A, 104, 128, and 1000. The
Exchange will apprise members and member organizations of the dates of
the discontinuation of the LRP functionality via an Information
Memorandum. The Exchange plans to revisit the merits of discontinuing
the LRP functionality after the initial Plan pilot period has ended and
may file to reincorporate the LRP functionality at that time as well.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the requirements of Section 6(b) of the Act,\11\ in general, and
Section 6(b)(5) of the Act,\12\ in particular, in that it is designed
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to
and perfect the mechanism for a free and open market and a national
market system. However, the Exchange is discontinuing the LRP
functionality and deleting corresponding rule references to implement
changes that the Commission has requested and expects as reflected in
the LULD Release. Moreover, the related Information Memorandum to
members and member organizations would provide advance notice to NYSE
members and member organizations that the Exchange would cease offering
the LRP functionality in furtherance of the Commission's expectations.
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\11\ 15 U.S.C. 78f(b).
\12\ 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 will
impose a burden on competition because the Exchange is discontinuing
the LRP functionality to fulfill the Commission's expectations. In this
respect, the Exchange notes that because Commission expects all
exchanges to discontinue their respective volatility mechanisms, there
should be no burden on competition because all exchanges as well as
their members and issuers would be similarly situated.
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 \13\ and Rule 19b-4(f)(6) thereunder.\14\
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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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and 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. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\16\ 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 designate an operative date of April 8, 2013. The
Commission believes that waiving the operative delay and designating
April 8, 2013 as the operative date of the proposed rule change is
consistent with the protection of investors and the public interest
because such waiver would allow the proposed rule change to be
operative on the initial date of Plan operations. Accordingly, the
Commission hereby grants the Exchange's request and designates an
operative date of April 8, 2013.\17\
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\15\ 17 CFR 240.19b-4(f)(6).
\16\ 17 CFR 240.19b-4(f)(6)(iii).
\17\ For purposes only of waiving the operative delay, the
Commission has 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 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-2013-27 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-2013-27. 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
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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 publicly available. All
submissions should refer to File Number SR-NYSE-2013-27 and should be
submitted on or before May 1, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08321 Filed 4-9-13; 8:45 am]
BILLING CODE 8011-01-P