[Federal Register Volume 79, Number 17 (Monday, January 27, 2014)]
[Notices]
[Pages 4366-4371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-01424]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71360; File No. SR-NYSE-2014-02]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change Amending Supplementary
Material .20 to Rule 103 Which Sets Forth Net Liquid Assets
Requirements for Member Organizations That Operate as Designated Market
Maker Units
January 21, 2014.
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 6, 2014, the New York Stock Exchange LLC (the
``Exchange'' or ``NYSE'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I, II, and III 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 Supplementary Material .20 to Rule
103 (``Rule 103.20''), which sets forth net liquid assets requirements
for member organizations that operate as Designated Market Maker
(``DMM'') units (``DMM units''). 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 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 Exchange proposes to amend Rule 103.20, which sets forth net
liquid assets requirements for member organizations that operate as DMM
units.\3\ Specifically, the Exchange proposes to change the types of
financial assets and resources that would count toward meeting the net
liquid assets requirement without reducing the level of the overall
requirement and reorganize and add detail to the rule so that it is
easier to understand.
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\3\ Pursuant to Rule 2(j), a DMM unit is defined as a member
organization or unit within a member organization that has been
approved to act as a DMM unit under Rule 98. Pursuant to Rule 2(i),
a DMM is defined as an individual member, officer, partner, employee
or associated person of a DMM unit who is approved by the Exchange
to act in the capacity of a DMM. All references to rules herein are
to NYSE rules, unless otherwise noted.
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Current Rule
Under Rule 103.20, the Exchange imposes a net liquid assets
requirement on each DMM unit subject to Rule 104 that typically far
exceeds the minimum net capital requirement applicable to a broker-
dealer under Commission Rule 15c3-1 (``SEC Net Capital Rule'').\4\ The
purpose of the Exchange's requirement is to reasonably assure that each
DMM unit maintains sufficient liquidity to carry out its obligation to
maintain an orderly market in its assigned securities in times of
market stress. The Exchange established the formula for the current net
liquid assets requirement in July 2011, which results in the aggregate
net
[[Page 4367]]
liquid assets of all DMM units equaling at least $125 million.\5\
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\4\ 17 CFR 240.15c3-1.
\5\ See Securities Exchange Act Release No. 64918 (July 19,
2011), 76 FR 44390 (July 25, 2011) (SR-NYSE-2011-35).
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Under current Rule 103.20, each DMM unit must maintain or have
allocated to it net liquid assets that are the greater of (1) $1
million or (2) $125,000 for each one-tenth of one percent (0.1%) of
Exchange transaction dollar volume \6\ in its registered securities
exclusive of Exchange Traded Funds (``ETFs''), plus $500,000 for each
ETF, plus a market risk add-on of the average of the prior 20 business
days' securities haircuts on its DMM dealer's positions computed
pursuant to paragraph (c)(2)(vi), exclusive of paragraph (N), under the
SEC Net Capital Rule. If the DMM unit is registered in ETFs, then it
must maintain the greater of $500,000 for each ETF or $1 million. A DMM
unit must inform NYSE Regulation immediately whenever the DMM unit is
unable to comply with these requirements.
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\6\ The term ``Exchange transaction dollar volume'' means the
most recent Statistical Data, calculated and provided by the NYSE on
a monthly basis.
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The term ``net liquid assets'' is defined as excess net capital
computed in accordance with the SEC Net Capital Rule and Rule 325, with
the following adjustments:
(1) Additions for haircuts and undue concentration charges taken
pursuant to Section (c)(2)(vi)(M) of the SEC Net Capital Rule on
registered securities in dealer accounts;
(2) Deductions for clearing organization deposits; and
(3) Deductions for any cash surrender value of life insurance
policies allowable under the SEC Net Capital Rule.
If two or more DMM units are associated with each other and deal
for the same DMM unit account, then the capital requirement of Rule
103.20 applies to such DMM units as one unit, rather than to each DMM
unit individually. Any joint account must be approved by NYSE
Regulation.
Notwithstanding Rule 98, the DMM unit's net liquid assets needed to
meet the requirements of Rule 103.20 must be dedicated exclusively to
DMM dealer activities and must not be used for any other purpose
without the express written consent of NYSE Regulation.
Solely for the purpose of maintaining a fair and orderly market,
NYSE Regulation may, for a period not to exceed five business days,
allow a DMM unit to continue to operate despite such DMM unit's
noncompliance with the provisions of the minimum requirements of Rule
103.20.
Developments Since July 2011 Rule Implementation
A determination of whether Rule 103.20 is appropriately calibrated
such that it is consistent with the overall level of DMM unit risk
involves consideration and assessment of many factors, including legal
and regulatory developments, market fragmentation, DMM unit end-of-day
inventory positions and position duration, and the use of technology to
manage market volatility. Since July 2011, the Exchange has continued
to regularly assess these factors.
With respect to legal and regulatory developments, the Exchange
states that the allocation of capital by market participants has become
much more disciplined and stringent following passage of the Dodd-Frank
Wall Street Reform and Consumer Protection Act \7\ and in light of the
impending U.S. implementation of the Basel III regulatory capital
reforms from the Basel Committee on Banking Supervision.\8\ DMMs
frequently are established in segregated units where capital cannot be
leveraged across other business activities, as it can in other
traditional market making businesses. The Exchange notes that overall
DMM unit risk levels have continued to decline due to, among other
things, implementation of marketwide volatility controls (e.g., Limit
Up/Limit Down price controls),\9\ enhanced technology resulting in
reduced trading latency levels, clearing organization risk control
enhancements, tighter percentage triggers on marketwide circuit
breakers,\10\ pre-trade risk controls (i.e., SEC Rule 15c3-5,\11\ the
``Market Access Rule''), and clearly defined Clearly Erroneous
Execution parameters and processes.\12\ These initiatives have
contributed to reducing the potential for significant and/or rapid
movements in the market and help DMM units in satisfying their
obligation to maintain an orderly market in assigned securities in
times of market stress. The Exchange also recently filed to adopt
optional ``kill switch'' mechanisms to reduce systemic risk for member
organizations, which is a market-wide initiative that has been
discussed among several U.S. equity exchanges.\13\
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\7\ Public Law 111-203, 124 Stat. 1376 (2010).
\8\ See 78 FR 62018 (October 11, 2013) (Adoption of Regulatory
Capital Rules by the Office of the Comptroller of the Currency and
the Federal Reserve Board: Regulatory Capital, Implementation of
Basel III, Capital Adequacy, Transition Provisions, Prompt
Corrective Action, Standardized Approach for Risk-weighted Assets,
Market Discipline and Disclosure Requirements, Advanced Approaches
Risk-Based Capital Rule, and Market Risk Capital Rule).
\9\ See, e.g., Securities Exchange Act Release No. 70530
(September 26, 2013), 78 FR 60937 (October 2, 2013) (File No. 4-
631).
\10\ See Rule 80B.
\11\ 17 CFR 240.15c3-5.
\12\ See Rule 128.
\13\ See Securities Exchange Act Release No. 71164 (December 20,
2013), 78 FR 79044 (December 27, 2013) (SR-NYSE-2013-80).
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With respect to market fragmentation, the Exchange notes that both
the overall consolidated Tape A volume as well as the Exchange's
average daily volume of shares traded have declined approximately 30%
since 2010, therefore resulting in less trading both market-wide and at
the Exchange in the securities assigned to DMMs.
As a result of this decline in marketplace volume and other
factors, the regular need for capital to fund end-of-day position
inventories has also declined. For example, the average value of DMM
units' end-of-day position inventories decreased by over 50% since the
last time the Exchange filed to amend the DMM net capital requirements.
As a result, the need to keep dedicated capital in the DMM unit is
inefficient and this proposal, as described below, would provide for
the ability to utilize capital in a more efficient manner. This
decrease in inventories also indicates that DMM units are carrying
significantly less overnight risk. Moreover, the duration of a position
is also much shorter than it was in years past, which has further
contributed to reducing overall DMM risk. Speed is a key tool for
managing risk, and the Exchange's focus on reducing round-trip order
execution times has helped DMM units reduce exposure time and better
manage their risks, while allowing them to offer better, more
competitively-priced quotes. The Exchange's round trip for marketable
order executions has declined from several hundred milliseconds in Q4
2010 to less than 1 millisecond in Q4 2013, based on an average of the
medians.
Finally, as the Exchange's marketplace has become more electronic,
DMM units have also increased their utilization of technology to reduce
risk exposure, in particular by using algorithms to adjust prices
quickly in response to market dynamics. In this regard, rapidly
incorporating market information into quotes provides better pricing
for investors, better risk control mechanisms for DMM units and
therefore a marketplace with greater stability and resilience, all of
which the Exchange believes contributes to reducing DMM unit risk.
[[Page 4368]]
Proposed Rule Change
In light of these developments, the Exchange believes that it is
now appropriate to amend the rule to expand the types of financial
assets and resources permitted to be used to meet the net liquid assets
requirement without changing the aggregate level of net liquid assets
maintained by all DMM units. The Exchange notes that the proposed rule
change is designed to promote a more efficient use of capital. The
Exchange believes that the current structure may act as a barrier to
entry for potential new DMM units because market makers and traders on
other U.S. equity exchanges are not subject to any additional net
capital requirements beyond the minimum net capital required by the SEC
Net Capital Rule. Providing a broader range of alternatives for meeting
the net liquid assets requirement would reduce that barrier to entry
and reduce the inefficient use of capital. The Exchange also believes
that Rule 103.20 should be revised and reorganized in a manner that
would make it clearer and easier to understand.
Proposed Rule 103.20(a) would contain new text setting forth
definitions. The term ``Net Liquid Assets'' would be redefined to mean
the sum of (A) ``Excess Net Capital'' and (B) ``Liquidity'' dedicated
to the DMM unit.\14\ The term ``Excess Net Capital'' would have the
same meaning as the term excess net capital as computed in accordance
with the SEC Net Capital Rule. This would mean the amount identified as
item number 3770 of SEC Form X-17A-5 (``FOCUS Report''), except for DMM
units that compute net capital under the alternative standard, for
which it would mean item number 3910 of the FOCUS Report. The additions
to and deletions from net liquid assets under current Rule
103.20(a)(iv)(A)-(C) as described above would no longer apply.
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\14\ The capitalized, defined terms used in the proposed rule
change would have the specific meanings proposed herein. Non-
capitalized forms of the terms (e.g., liquidity instead of
Liquidity) would have the general industry meaning. The Exchange
proposes to amend the title of Rule 103.20 to be ``DMM Financial
Requirements,'' instead of the current ``DMM Capital Requirements''
title, to reflect the proposed alternatives to capital when
determining Net Liquid Assets.
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Liquidity would be defined to mean undrawn or actual borrowings
that are dedicated to the DMM unit's business, including:
(A) Undrawn committed lines of credit from a bank, as defined in
Section 3(a)(6) of the Act; \15\
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\15\ 15 U.S.C. 78c(a)(6).
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(B) undrawn committed lines of credit from an affiliate of the DMM
unit or from the member organization of which the DMM unit is a part;
and
(C) actual borrowings after the effective date of the rule that (i)
have been used to purchase DMM unit securities, U.S. Treasury
securities, or reverse repurchase agreements collateralized by U.S.
Treasury securities, or (ii) are held as cash.\16\
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\16\ If a DMM utilizes an undrawn committed line of credit after
the effective date of the rule to make such purchases, the amount of
the credit line would continue to count toward Liquidity. Any
reduction in the value of purchased securities would be reflected in
Excess Net Capital.
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Proposed Rule 103.20(b)(1) would set forth the minimum Net Liquid
Assets requirement. The proposed rule change draws from the text of
current Rules 103.20(a) and (b), but reorders the text using the new
definitions proposed above to make it easier to understand. As noted
above, the aggregate level of Net Liquid Assets of $125 million would
not change, but the permitted components of Net Liquid Assets and
proportions thereof would change. Thus, proposed Rule 103.20(b)(1)
would provide that each DMM unit must at all times maintain or have
allocated to it minimum Net Liquid Assets equal to the greater of (i)
$1 million or (ii) $125,000 for every 0.1% of Exchange Transaction
Dollar Volume \17\ in each of the DMM unit's registered securities. The
market risk add-on requirement under current Rule 103.20(b)(i)(B) as
described above would no longer apply.
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\17\ The meaning of Exchange Transaction Dollar Volume would not
change, but it would become a defined term for purposes of Rule
103.20. See, e.g., current Rule 103.20(b)(iii), proposed Rule
103.20(a)(4) and supra note 6.
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Under the proposed rule change, there would no longer be a separate
financial requirement for ETFs,\18\ thus harmonizing the financial
requirements applicable to ETFs with those applicable to other
securities. Although the Exchange does not currently list or trade any
ETFs or other exchange traded products (``ETPs''), future business
developments could result in an expansion of products traded on the
Exchange to include them. Under the current rule, if a DMM unit were
assigned a significant number of ETFs, the net liquid assets
requirements for those ETFs would significantly exceed the net liquid
assets requirements applicable to an equal number of other securities.
The Exchange believes that ETFs and ETPs should be subject to the same
requirements as other securities.\19\
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\18\ See current Rules 103.20(a)(ii) and (b)(i)(A).
\19\ The Exchange further notes that the current ETF financial
requirements date back to a time when the overall financial
requirements for specialists (predecessors to DMM units) were
significantly higher, and have not been modernized to account for a
changing micro and macro market structure, despite decreases in the
financial requirements applicable to other securities. See
Securities Exchange Act Release No. 54205 (July 25, 2006), 71 FR
43260 (July 31, 2006) (SR-NYSE-2005-38).
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Under proposed Rule 103.20(b)(2), the portion of a DMM unit's Net
Liquid Assets that is derived from Excess Net Capital must at all times
equal or exceed 40% of a DMM unit's total Net Liquid Assets
requirement. Excess Net Capital that is allocated to the DMM unit must
be dedicated exclusively to the DMM unit's activities and may not be
used by other business units within, or for any other purpose of, the
member organization. This is designed to reasonably assure that DMM
units maintain sufficient levels of Excess Net Capital and that their
Net Liquid Assets are not overly weighted with borrowings or credit
lines.
Proposed Rule 103.20(b)(3) would be substantially the same as
current Rule 103.20(a)(v). The proposed rule would provide that if two
or more DMM units were associated with each other and deal for the same
joint DMM unit account, the Net Liquid Assets requirements enumerated
in proposed Rule 103.20 would apply to such DMM units treated as one
unit, rather than to each DMM unit individually, and any joint account
involving two or more DMM units would be required to be approved in
writing by NYSE Regulation or its designee.
Under proposed Rule 103.20(b)(4), all Liquidity would be required
to be subject to a written agreement that provided for a commitment
period of not less than 30 calendar days and, once borrowed, an initial
repayment term of not less than 30 calendar days, and an unconditional,
irrevocable commitment with no material adverse change or other
limiting clauses, other than provisions to accelerate the commitment
period to 30 calendar days. Such written agreement must be made
available to the Exchange upon request.
Under proposed Rule 103.20(b)(5), all Liquidity provided via a
commitment to a DMM unit from an affiliate, or to a DMM unit from the
member organization of which the DMM unit is a part, would be required
to be included in a comprehensive liquidity plan prepared by the
affiliate or the member organization, as the case may be, that provided
for stress testing of the overall Liquidity of all entities that rely
on such Liquidity, including the DMM unit, and the plan must show
excess Liquidity for a period of at least 30 calendar days beyond the
date that the DMM unit is relying on Liquidity for its Net Liquid
Assets computation. The DMM unit would be required to arrange for the
[[Page 4369]]
affiliate(s), or the member organization of which the DMM unit is a
part, to submit liquidity plans to the Exchange or its designee upon
request.
The requirement that DMM units notify the Exchange if they are
unable to satisfy the requirements of Rule 103.20 would be moved from
current Rule 103.20(a)(iii) to proposed Rule 103.20(c), titled
``Notification Requirements,'' and further revised. Proposed Rule
103.20(c)(1) would specify that a DMM unit must immediately notify the
Exchange when (A) the DMM unit's Net Liquid Assets fall below the
minimum requirements; (B) the percentage of Net Liquid Assets derived
from the DMM unit's Excess Net Capital falls below 40% of the total Net
Liquid Assets requirement; (C) Liquidity has a commitment term of less
than 30 calendar days from the date of the DMM unit's Net Liquid Assets
computation; (D) the DMM unit is not in compliance with one or more
terms of its loan or commitment agreements relating to its DMM
activities; or (E) the repayment date of any actual borrowing is 30
days or less. The Exchange would also maintain the current provision
under Rule 103.20(c) that provides the Exchange with the flexibility to
allow a DMM unit to continue to operate as such for a limited period of
time despite not meeting certain requirements of Rule 103.20.
Specifically, proposed Rule 103.20(c)(2) would provide that if the
Exchange received notice of a condition under proposed Rule
103.20(c)(1), the Exchange could allow a DMM unit to continue to
operate as such for a period not to exceed five business days from the
date of such notice in order to permit the DMM unit to resolve such
condition. If the DMM unit were granted such a period and timely
resolved the condition requiring notice under paragraph (c)(1), it
could continue to operate as a DMM unit thereafter. The Exchange notes
that regardless of whether a resolution period was granted, the
Exchange retains the discretion to take enforcement action against any
member organization for non-compliance with the Exchange's rules in
appropriate circumstances.
The Exchange believes that the proposed change would result in DMM
units maintaining a robust level of capital through a means that is
less burdensome for DMM units to satisfy. The Exchange notes that it
would continue to assess DMM unit financial requirements and that the
Financial Industry Regulatory Authority, Inc. (``FINRA''), on behalf of
the Exchange, would monitor DMM unit Net Liquid Assets on a daily
basis.\20\ The Exchange would notify DMM units of the implementation
date of this rule change via a Member Education Bulletin.
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\20\ See Rule 0 (describing the regulatory services agreement
between NYSE and FINRA). In particular, FINRA would monitor actual
DMM unit borrowings after the effective date of the proposed rule to
assess whether proceeds have been used to purchase DMM unit
securities, U.S. Treasury securities, or reverse repurchase
agreements collateralized by U.S. Treasury securities, or are held
as cash. This could be accomplished, for example, by comparing the
timing of the borrowings to the timing of a DMM unit's purchases of
the corresponding assets.
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The proposed change is not otherwise intended to address any other
issues and the Exchange is not aware of any problems that DMM units
would have in complying with the proposed change.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\21\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\22\ in particular, because 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 regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to, and
perfect the mechanisms of, a free and open market and a national market
system and, in general, to protect investors and the public interest
and because it is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed change would remove
impediments to, and perfect the mechanisms of, a free and open market
and a national market system by reducing the burden on DMM units to
maintain inordinate levels of excess net capital. The Exchange believes
that using Liquidity to satisfy a portion of the DMM unit Net Liquid
Assets requirements would be more efficient and less burdensome than
the existing requirements, under which DMM units must generally
maintain materially more net liquid assets than they have historically
needed on a day-to-day basis. When maintained as excess net capital,
these ``excess'' assets cannot be as efficiently utilized. The Exchange
further anticipates that Liquidity would generally be made available to
a DMM unit at a lower cost than additional capital.
The Exchange believes that using a combination of Excess Net
Capital and Liquidity for purposes of satisfying the DMM unit Net
Liquid Assets requirement would reasonably assure that DMM units have
sufficient liquidity to carry out their obligations to maintain an
orderly market in their assigned securities in times of market stress.
In this regard, the Exchange notes that overall DMM unit risk levels
have continued to decline due to, among other things, implementation of
marketwide volatility controls (e.g., Limit Up/Limit Down price
controls), enhanced technology resulting in reduced trading latency
levels, clearing organization risk control enhancements, tighter
percentage triggers on marketwide circuit breakers, pre-trade risk
controls (i.e., the Market Access Rule), and clearly defined Clearly
Erroneous Execution parameters and processes. These initiatives have
contributed to reducing the potential for significant and/or rapid
movements in the market and provide support to DMM units in satisfying
their obligation to maintain an orderly market in assigned securities
in times of market stress. An initiative to develop a marketwide ``kill
switch'' to reduce systemic risk has also been discussed among several
U.S. equity exchanges. The Exchange further believes that continued
market fragmentation, the decline in the average value of DMM units'
end-of-day position inventories and the shorter duration of positions,
and improved technology to manage market risk also support the proposed
rule change.
The need for a source of liquid assets could occur during times of
market stress when DMM units need to acquire more and larger positions
at times when their capital levels are largely comprised of DMM unit
positions and their liquidity has been exhausted. While these purchases
and sales of DMM unit positions are generally ``capital neutral,''
absent a significant market movement, to the extent the DMM unit needs
to engage in additional transactions, it could require additional
liquidity to settle these transactions. The Exchange believes that
requiring at least 40% of the Net Liquid Assets requirement to be
satisfied by Excess Net Capital, rather than Liquidity, would be
consistent with the Act and protect investors and the public interest
because it is set at a level that the Exchange believes exceeds the
amount of capital that historical DMM unit losses have required.
Additionally, 40% would be the minimum level of Excess Net Capital to
satisfy the Net Liquid Assets requirement, such that DMM
[[Page 4370]]
units would remain able to maintain higher levels of Excess Net Capital
and therefore be less weighted with Liquidity. Also, while the market
risk add-on under current Rule 103.20(b)(i)(B) would no longer apply to
the amount of Excess Net Capital that the DMM unit must maintain,
neither would the additions to net liquid assets allowed for haircuts
and undue concentration charges under current Rule 103.20(a)(iv),
therefore effectively cancelling each other out.
The Exchange further believes that the proposed change would
protect investors and the public interest by reducing existing barriers
to entry for new DMM units and mitigating the potential loss of
existing DMM units. Stabilizing and increasing the pool of DMM units
with a more efficient financial structure would be beneficial to the
Exchange and would also enhance market quality and thereby support
investor protection and public interest goals.
The Exchange believes that harmonizing the financial requirements
applicable to ETFs with those applicable to other securities would
remove impediments to, and perfect the mechanisms of, a free and open
market and a national market system by eliminating a potential
disincentive to seeking appointment as a DMM unit in ETFs. Investors
would continue to be protected and the public interest would continue
to be served because DMM units appointed to ETFs would be subject to
the same Net Liquid Assets requirements as DMM units appointed to other
securities, which would reasonably assure maintenance of sufficient
liquidity to carry out DMM unit obligations to maintain an orderly
market in such assigned ETFs in times of market stress. The Exchange
does not believe that there is a basis to conclude that ETFs subject
DMM units to greater risk than other securities. The Exchange therefore
does not believe that there is a need for DMM units to maintain capital
for ETFs or ETPs at levels that are greater than the levels required
for other securities.
Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition.
For these reasons, the Exchange believes that the proposal is
consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\23\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The proposed change is designed to amend the
structure of DMM unit financial requirements, but not the overall level
thereof. This proposed change in the structure of required DMM unit
capital would eliminate a potential barrier to entry for new DMM units
and thereby promote intramarket competition.
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\23\ 15 U.S.C. 78f(b)(8).
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The Exchange notes that market makers and traders on other U.S.
equity exchanges are not subject to financial requirements beyond those
required by the SEC Net Capital Rule. Nonetheless, DMM units have
unique affirmative obligations and the Exchange continues to believe
that it is appropriate that their financial requirements be higher than
other market participants. The proposal would support intermarket
competition by structuring DMM unit financial requirements in a way
that is more manageable for member organizations, including both
existing and potential future DMM units, and would thereby promote
greater interest in seeking DMM unit appointments on the Exchange
rather than as comparable market participants on other markets.
Finally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues. In such an environment, the Exchange must continually
review, and consider adjusting the services it offers and the
requirements it imposes to remain competitive with other U.S. equity
exchanges. For the reasons described above, the Exchange believes that
the proposed rule change reflects this competitive environment.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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-2014-02 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-2014-02. 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.
[[Page 4371]]
All submissions should refer to File Number SR-NYSE-2014-02 and
should be submitted on or before February 18, 2014.
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\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01424 Filed 1-24-14; 8:45 am]
BILLING CODE 8011-01-P