[Federal Register Volume 80, Number 7 (Monday, January 12, 2015)]
[Notices]
[Pages 1567-1570]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-00222]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 74006; File No. SR-NYSE-2014-73]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending Rule 123C To Specify That Exchange Systems May Close One or
More Securities Electronically
January 6, 2015.
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 December 23, 2014, 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,
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\ 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 123C to specify that Exchange
systems may close one or more securities electronically if a Designated
Market Maker (``DMM'') registered in a security or securities cannot
facilitate the close of trading as required by Exchange rules. 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, on the
Commission's Web site at www.sec.gov, and at the Commission's Public
Reference Room.
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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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 123C to specify that Exchange
systems may close one or more securities electronically if a Designated
Market Maker registered in a security or securities cannot facilitate
the close of trading as required by Exchange rules.
Rule 123C specifies the procedures to be followed at the close of
trading on the Exchange, including procedures for the execution of
closing interest,\4\ which interest is guaranteed to participate in the
closing transaction,\5\ and the determination of the closing print(s)
to be reported to the Consolidated Tape for each security.
Supplementary Material .10 to Rule 123C (``Rule 123C.10'') currently
provides that closings may be effectuated manually or electronically.
However, the current rule contemplates that closings would be
facilitated by the DMM, as provided for in Rule 104(a)(3).
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\4\ See Rule 123C(7) (Order of Execution at the Close). Rule
123C(7)(a) specifies the type of interest that must be executed in
whole or in part in the closing transaction, and the allocation
order of such interest.
\5\ See Rule 123C(8).
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The Exchange proposes to amend Rule 123C.10 to provide that, if a
DMM cannot facilitate the close of trading for one or more securities
for which the DMM is registered, the Exchange would close those
securities electronically.\6\ Unlike DMMs, who have the obligation to
trade for their own account to supply liquidity as needed to facilitate
the close,\7\ the Exchange would not supply any liquidity when
effectuating an electronic close. Without the addition of liquidity to
offset an imbalance, the closing price may not be reasonably related to
the last sale. To avoid closing at a price too far away from the last
sale, the Exchange proposes to establish numerical guidelines to
provide parameters regarding the price a security may close when the
Exchange closes such security.
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\6\ The proposed amendment contemplates that a DMM's inability
to close securities either manually or electronically would be
related to business continuity disruptions such as the physical
closing of the Exchange Trading Floor or equipment and connectivity
breakdowns that prevent the DMM from closing a security either
manually or electronically. When a DMM is unable to close securities
manually or electronically, the DMM's affirmative obligations under
Rule 104 would not apply.
\7\ See Rule 104(a)(3) and 104(f)(iii).
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As proposed, the closing price of a security closed by the Exchange
would not be greater than or less than the last sale price on the
Exchange (the ``Reference Price'') by an amount within the Closing
Numerical Guidelines set forth below:
------------------------------------------------------------------------
Closing
numerical
guideline
(closing price
Reference price % difference
from the
reference
price)
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Greater than $0.00 up to and including $25.00........... 10
Greater than $25.00 up to and including $50.00.......... 5
Greater than $50.00..................................... 3
------------------------------------------------------------------------
The proposed numerical guidelines are the same as those currently
utilized in determining whether an execution qualifies as clearly
erroneous under Rule 128.\8\ The Exchange believes that using the same
guidelines when the Exchange closes a security electronically is
appropriate because it would reduce the potential for the closing price
on the Exchange to be considered erroneous.
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\8\ Rule 128 defines a clearly erroneous execution as an
execution with an obvious error in any term, such as price, number
of shares or other unit of trading, or identification of the
security. Under the numerical guidelines set forth in Rule 128, an
execution may be found to be clearly erroneous only if the price of
the transaction to buy is greater, or less in the case of a sale,
than the reference price by an amount that equals or exceeds the
numerical guidelines for a particular transaction category. In
determining whether an execution is clearly erroneous, the Exchange
generally utilizes the consolidated last sale as the Reference
Price.
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Further, the Exchange proposes to amend Rule 123C.10 to specify the
eligible interest to be considered in an Exchange electronic close.
Specifically, as proposed, no manually-entered Floor interest would
participate in an Exchange electronic close, and if previously entered,
would be ignored.\9\ Further, in performing a close under the proposed
rule, the Exchange would consider all interest eligible to trade in the
close consistent with Rule 123C(7) \10\ and 123C(8)(a).\11\ Under no
circumstances, however, would the Exchange close a security if the
closing price would be greater than or less than the Reference Price by
an amount outside the Closing Numerical Guidelines. Accordingly,
interest specified in Rule 123C(7)(a) would not participate in a
closing trade if such interest would cause a closing price to be
outside the Closing Numerical Guidelines.
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\9\ Manually-entered Floor interest includes interest entered by
the DMM on behalf of a Floor broker and the DMM interest entered
manually. The Exchange notes that, under regular trading conditions,
if manually-entered Floor interest has been entered into Exchange
systems, Exchange systems will not permit a DMM to close a stock
electronically and the DMM would instead be required to close the
security manually. The Exchange proposes to make this explicit in
the text of Supplementary Material .10.
\10\ Rule 123C(7)(a) sets forth the interest that must be
executed or cancelled as part of the closing transaction as well as
the order of execution. Rule 123C(7)(b) sets forth the interest that
may be used to offset a closing imbalance and the order of execution
(i.e., interest that is not guaranteed to participate in the closing
transaction).
\11\ Rule 123C(8) governs printing of the closing transaction
where there is an order imbalance (Rule 123C(8)(a)) and where there
is no order imbalance (Rule 123C(8)(b)).
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The proposed rule would also specify that the provisions of Rule
123C(9)(a)(1) and 123C(9)(b) would be suspended if the Exchange closes
a security electronically. Rule 123C(9)(a)(1) permits the Exchange, on
a security-by-security basis, to temporarily suspend the hours of
operation under Rule 52 so that offsetting interest may be solicited
from both on-Floor and off-Floor participants and entered after 4:00
p.m. ET to reduce the size of the imbalance. Rule 123C(9)(b) specifies
that only the DMM may request the temporary suspensions available under
Rule 123C(9)(a). As proposed, if the Exchange closes a security
electronically, the assigned DMM would not have the authority to invoke
Rule 123C(9)(a)(1).
Similarly, the proposed rule would specify that only the Exchange
would be able to invoke Rule 123C(9)(a)(2) if the Exchange closes a
security electronically. Rule 123C(9)(a)(2) permits temporary
suspensions of the prohibition on the cancellation or reduction of a
Market on Close (``MOC'')/Limit on Close (``LOC'') order after 3:58
p.m. where there is a legitimate error in such an order and execution
of the order would cause significant price dislocation at the close.
Only the assigned DMM can request relief under Rule 123C(9)(a)(2).
Under the proposed rule, in an electronic close by the Exchange, Rule
123C(9)(a)(2) would be in effect but the assigned DMM would not have
authority to temporarily suspend cancellation; only
[[Page 1569]]
the Exchange would be able to invoke a temporary suspension under the
rule.
Because of the technology changes associated with the proposed rule
change, the Exchange proposes to announce the implementation date via
Trader Update.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\12\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\13\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
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, and protect investors and the public interest. The
Exchange believes that permitting the Exchange to automatically close
trading would remove impediments to and perfect the mechanism of a free
and open market and a national market system by ensuring an orderly
close if the registered DMM cannot manually or electronically
facilitate the close of trading as required by Exchange rules.
Similarly, the proposal promotes just and equitable principles of trade
and removes impediments to and perfects the mechanism of a free and
open market by providing customers and the investing public with the
certainty of a close in circumstances where business continuity
disruptions or other emergencies would prevent the assigned DMMs from
closing a security. For the same reasons, the proposal is also designed
to protect investors as well as the public interest.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed amendment to Rule 123C.10
to provide that closings effectuated by the Exchange would be within a
proposed numerical guideline would remove impediments to and perfect
the mechanism of a free and open market because having such guidelines
provides transparency regarding the range of potential prices that a
security may close in such scenario. The Exchange further believes that
the proposed numerical guidelines, which are based on existing
guidelines for clearly erroneous executions, would remove impediments
to and perfect the mechanism of a fair and orderly market because in
the absence of a DMM supplying liquidity, the proposed guidelines would
reduce the possibility for closing prices to not [sic] be executed at
potentially erroneous prices, thereby protecting investors and the
public. Similarly, the Exchange believes that excluding interest
eligible for the close that would cause an execution to occur outside
the proposed numerical guidelines, even if such interest would
otherwise be required to be included in a close effectuated by a DMM,
and permitting the Exchange to cancel or reduce an MOC/LOC order after
3:58 p.m. where there is a legitimate error and execution of the order
would cause significant price dislocation at the close, would remove
impediments to and perfect the mechanism of a fair and orderly market
because it would assure that the Exchange could effectuate the close
within the proposed specified price ranges. The proposed rule therefore
promotes just and equitable principles of trade because it provides
transparency to entering firms of whether interest would be eligible to
participate in a closing transaction effectuated by the Exchange.
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. The proposed rule change is
not intended to address competitive issues but rather enable the
Exchange to close trading where circumstances would prevent a DMM from
facilitating a close.
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 \14\ and Rule 19b-4(f)(6) thereunder.\15\
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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\14\ 15 U.S.C. 78s(b)(3)(A)(iii).
\15\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\17\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest.
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\16\ 17 CFR 240.19b-4(f)(6).
\17\ 17 CFR 240.19b-4(f)(6)(iii).
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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. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \18\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\18\ 15 U.S.C. 78s(b)(2)(B).
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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-2014-73 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2014-73. 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
[[Page 1570]]
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 available publicly. All
submissions should refer to File Number SR-NYSE-2014-73 and should be
submitted on or before February 2, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00222 Filed 1-9-15; 8:45 am]
BILLING CODE 8011-01-P