[Federal Register Volume 78, Number 135 (Monday, July 15, 2013)]
[Notices]
[Pages 42135-42138]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-16820]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69952; File No. SR-NYSEMKT-2013-61]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending NYSE MKT Rules
504 and 509--Equities With Respect to DMM Quoting Requirements
Applicable to Nasdaq Stock Market Securities Traded on the Exchange
Pursuant to A Grant of Unlisted Trading Privileges
July 9, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on June 26, 2013, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'')
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 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 NYSE MKT Rules 504 and 509--Equities
with respect to DMM quoting requirements applicable to Nasdaq Stock
Market (``Nasdaq'') securities traded on the Exchange pursuant to a
grant of unlisted trading privileges. 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 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 amend NYSE MKT Rules 504 and 509--Equities
with respect to DMM quoting requirements applicable to Nasdaq
securities traded on the Exchange pursuant to a grant of unlisted
trading privileges. NYSE MKT Rules 500-525--Equities, as a pilot
program, govern the trading of any Nasdaq-listed security on the
Exchange pursuant to unlisted trading privileges (``UTP Pilot
Program'').\3\ The UTP Pilot Program includes any security listed on
Nasdaq that (i) is designated as an ``eligible security'' under the
Joint Self-Regulatory Organization Plan Governing the Collection,
Consolidation and Dissemination of Quotation and Transaction
Information for Nasdaq-Listed Securities Traded on Exchanges on an
Unlisted Trading Privilege Basis, as amended (``UTP Plan''),\4\ and
(ii) has been admitted to dealings on the Exchange pursuant to a grant
of unlisted trading privileges in accordance with Section 12(f) of the
Act \5\ (collectively, ``Nasdaq Securities'').\6\
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\3\ The UTP Pilot Program is currently scheduled to expire on
the earlier of Commission approval to make such pilot permanent or
January 31, 2014. See Securities Exchange Act Release No. 69814
(June 20, 2013) (SR-NYSEMKT-2013-53) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change Amending NYSE MKT Rule 500--
Equities to Extend the Operation of the Pilot Program that Allows
Nasdaq Stock Market (``Nasdaq'') Securities to be Traded on the
Exchange Pursuant to a Grant of Unlisted Trading Privileges). See
also Securities Exchange Act Release No. 62479 (July 9, 2010), 75 FR
41264 (July 15, 2010) (SR-NYSEAmex-2010-31). See also Securities
Exchange Act Release Nos. 62857 (September 7, 2010), 75 FR 55837
(September 14, 2010) (SR-NYSEAmex-2010-89); 63601 (December 22,
2010), 75 FR 82117 (December 29, 2010) (SR-NYSEAmex-2010-124); 64746
(June 24, 2011), 76 FR 38446 (June 30, 2011) (SR-NYSEAmex-2011-45);
66040 (December 23, 2011), 76 FR 82324 (December 30, 2011) (SR-
NYSEAmex-2011-104); 67497 (July 25, 2012), 77 FR 45404 (July 31,
2012) (SR-NYSEMKT-2012-25); and 68561 (January 2, 2013), 78 FR 1290
(January 8, 2013) (SR-NYSEMKT-2012-86).
\4\ See Securities Exchange Act Release No. 58863 (October 27,
2008), 73 FR 65417 (November 3, 2008) (File No. S7-24-89). The
Exchange's predecessor, the American Stock Exchange LLC, joined the
UTP Plan in 2001. See Securities Exchange Act Release No. 55647
(April 19, 2007), 72 FR 20891 (April 26, 2007) (S7-24-89). In March
2009, the Exchange changed its name to NYSE Amex LLC, and in May
2012, the Exchange subsequently changed its name to NYSE MKT LLC.
See Securities Exchange Act Release Nos. 59575 (March 13, 2009), 74
FR 11803 (March 19, 2009) (SR-NYSEALTR-2009-24) and 67037 (May 21,
2012), 77 FR 31415 (May 25, 2012 (SR-NYSE Amex-2012-32),
\5\ 15 U.S.C. 781.
\6\ ``Nasdaq Securities'' is included within the definition of
``security'' as that term is used in the NYSE MKT Rules--Equities.
See NYSE MKT Rule 3--Equities. In accordance with this definition,
Nasdaq Securities are admitted to dealings on the Exchange on an
``issued,'' ``when issued,'' or ``when distributed'' basis. See NYSE
MKT Rule 501--Equities.
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Designated Market Maker units (``DMM units'') \7\ registered in one
or more Nasdaq Securities must comply with all ``DMM rules,'' as
defined in NYSE MKT Rule 98--Equities,\8\ and the
[[Page 42136]]
obligations and benefits of DMMs in Nasdaq Securities closely track
those applicable to DMMs in Exchange-listed equities, subject to
certain modifications enumerated in NYSE MKT Rule 509--Equities. As is
the case with DMMs in Exchange-listed equities, a DMM unit in Nasdaq
Securities has an affirmative obligation to engage in a course of
dealings for its own account to assist in the maintenance of a fair and
orderly market insofar as reasonably practicable, including maintaining
price continuity with reasonable depth and quoting and trading with
reference to Exchange-provided Depth Guidelines.\9\ In addition, a DMM
in Nasdaq Securities is required to facilitate trading when a ``gap''
quote procedure is being used and when a manual block trade is being
executed.\10\
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\7\ See NYSE MKT Rule 103--Equities--Registration and Capital
Requirements of DMMs and DMM Units. ``DMM unit'' means any member
organization, aggregation unit within a member organization, or
division or department within an integrated proprietary aggregation
unit of a member organization that (i) has been approved by NYSE
Regulation pursuant to section (c) of this Rule 103, (ii) is
eligible for allocations under NYSE MKT Rule 103B--Equities as a DMM
unit in a security listed or traded on the Exchange, and (iii) has
met all registration and qualification requirements for DMM units
assigned to such unit. See NYSE MKT Rule 98(b)(2)--Equities.
\8\ ``DMM rules'' means any rules that govern DMM conduct or
trading. See NYSE MKT Rule 98(b)(5)--Equities.
\9\ See NYSE MKT Rule 104(a), (f)(ii) and (f)(iii)--Equities.
\10\ See NYSE MKT Rule 104(a)(5)--Equities.
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The obligations of DMM units registered to trade Nasdaq Securities
are, however, slightly different from those that apply to DMMs in
Exchange-listed securities. First, the rules that apply to trading in
Nasdaq Securities on the Exchange do not provide for opening and
closing auctions in Nasdaq Securities, so DMMs in Nasdaq Securities are
not responsible for facilitating openings and closings, as DMMs in
listed equities are. Second, NYSE MKT Rule 509(a)(1)--Equities states
that in lieu of NYSE MKT Rule 104(a)(1)(A)--Equities, with respect to
maintaining a continuous two-sided quote with reasonable size, a DMM
unit registered in Nasdaq Securities must maintain a quote at the
National Best Bid or Offer (``inside'') in each assigned Nasdaq
Security an average of at least 10% of the time during the regular
business hours of the Exchange for each calendar month for Nasdaq
Securities with a consolidated average daily volume (``CADV'') of less
than one million shares per calendar month and an average of at least
5% of the time during the regular business hours of the Exchange for
each calendar month for Nasdaq Securities with a CADV equal to or
greater than one million shares per calendar month. As such, a DMM in a
Nasdaq Security is required to meet these quoting requirements on a
stock-by-stock basis.
The Exchange proposes to amend NYSE MKT Rule 509(a)(1)--Equities to
require that DMM units maintain a bid or offer at the NBBO for a
certain percentage of the trading day on a portfolio basis. The
percentage required would depend on whether the stock is a ``More
Active Security'' or ``Less Active Security'' security, as defined in
Rule 103B(II)(B) and (C)--Equities. As proposed, a DMM unit would be
required to maintain a bid or offer at the NBBO for at least 15% of the
trading day for Nasdaq Securities in which the DMM unit is registered
with a CADV of less than one million shares (i.e., Less Active
Securities), and at least 10% of the trading day for Nasdaq Securities
in which the DMM unit is registered with a CADV equal to or greater
than one million shares (i.e., More Active Securities).
The requirements of proposed NYSE MKT Rule 509(a)(1)(A) are modeled
on the DMM unit quoting requirements in New York Stock Exchange LLC
(``NYSE'') Rule 104(a)(1)(A), which requires that DMM units maintain a
bid or offer at the NBBO for a certain percentage of the trading day on
a portfolio basis. Specifically, NYSE Rule 104(a)(1)(A) requires that
DMM units maintain a bid or offer at the NBBO for at least 15% of the
trading day for NYSE-listed securities in which the DMM unit is
registered with a CADV of less than one million shares, and at least
10% for securities for NYSE-listed securities in which the DMM unit is
registered with a CADV equal to or greater than one million shares.
The Exchange notes that the NYSE requirement for NYSE-listed
securities is greater than the DMM unit quoting requirement for
Exchange-listed securities. NYSE MKT Rule 104(a)(1)(A)--Equities
requires that DMM units maintain a bid or offer at the NBBO for a
certain percentage of the trading day for all Exchange-listed
securities in which the DMM unit is registered, specifically, at least
10% of the trading day for the Exchange-listed securities in which the
DMM unit is registered with a CADV of less than one million shares, and
at least 5% for securities in which the DMM unit is registered with a
CADV equal to or greater than one million shares.
Accordingly, under the proposed change, DMM units would be required
to meet a quoting requirement for Nasdaq Securities that is greater
than the quoting requirement for Exchange-listed securities.
The Exchange believes the proposed change is appropriate in light
of the low volume of trading of Nasdaq Securities occurring on the
Exchange. The Exchange believes that basing the quoting requirements on
quoting in the portfolio of securities in which the DMM unit is
registered rather than on a security-by security basis will encourage
quoting activity in a broader number of Nasdaq Securities, including
less active securities. Because, in part, of the difficulty DMM units
have in meeting the current stock-by-stock quoting obligation, DMM
units have declined to participate in the UTP Pilot Program, and
trading in Nasdaq Securities on NYSE MKT is minimal, with only 135 of
the approximately 2,600 Nasdaq Securities trading at the Exchange as of
May 21, 2013. Specifically, meeting the security-by-security quoting
requirement on a daily basis has been sufficiently difficult to
discourage DMM units from participating in the UTP program. The
Exchange believes that the portfolio approach will give DMM units more
flexibility in meeting the quoting requirements, thus encouraging DMM
participation in the UTP Pilot Program. The Exchange notes that while
there may be more or less quoting in individual securities in the
portfolio in any particular trading session, as with the portfolio
quoting requirement for NYSE and the Exchange, the Exchange believes
that over time, quoting across all of the assigned Nasdaq Securities
will even out as the requirement to meet the portfolio requirement
would discourage an imbalance in quoting any one security. The Exchange
therefore seeks to adopt an obligation that is both meaningful and
attainable to encourage increased participation by DMM units in the UTP
Pilot Program, which would result in more liquidity providing and
quoting in a higher number of Nasdaq Securities trading on the
Exchange.
The Exchange also notes that the proposed quoting requirement is
higher than the quoting requirement applicable to Exchange-listed
securities, and therefore the obligation associated with the quoting
requirement for DMMs in Nasdaq Securities would still be greater than
the similar obligation for Exchange-listed securities. The Exchange
believes that this is appropriate given the Commission's prior finding
that the obligations and benefits for DMMs that trade Nasdaq Securities
differ from the obligations and benefits for DMMs that trade Exchange-
listed securities.\11\ The Exchange believes that the proposed change
strikes the appropriate balance between setting a meaningful obligation
to the market that is tailored to the volume levels of Nasdaq
Securities that trade in the UTP Pilot Program while at the same time
recognizing that the obligations for DMM units must be meaningful as
compared to the benefits they receive.
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\11\ See Securities Exchange Act Release Nos. 62479 (July 9,
2010), 75 FR 41264 (July 15, 2010) (SR-NYSEAmex-2010-31).
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[[Page 42137]]
Finally, the Exchange notes that using a similar structure for the
obligations for listed securities and for Nasdaq Securities would, for
the same DMM unit eliminate in large part the additional responsibility
and burden for DMM units to design, implement and maintain different
technology approaches and programming for their trading and internal
compliance applications relating to Nasdaq Securities only.
The Exchange also proposes to delete from NYSE MKT Rule
504(b)(1)(A)--Equities, Nasdaq Security Assignment, the text setting
out the DMM quoting requirements of NYSE MKT Rule 509--Equities and to
replace the repetition of the text with a cross-reference to NYSE MKT
Rule 509--Equities.
The Exchange proposes to implement the rule changes effective [sic]
August 1, 2013.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange. In particular,
the Exchange believes that its proposal is consistent with: (i) Section
6(b) of the Act,\12\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\13\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and, in general, to protect investors and the public interest; (ii)
Section 11A(a)(1) of the Act,\14\ in that it seeks to ensure the
economically efficient execution of securities transactions and fair
competition among brokers and dealers and among exchange markets; and
(iii) Section 12(f) of the Act,\15\ which governs the trading of
securities pursuant to UTP consistent with the maintenance of fair and
orderly markets, the protection of investors and the public interest,
and the impact of extending the existing markets for such securities.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ 15 U.S.C. 78k-1(a)(1).
\15\ 15 U.S.C. 78l(f).
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Specifically, the Exchange believes that the proposed change would
remove impediments to and perfect the mechanism of a free and open
market and national market system because it would remove an obligation
that is virtually impossible for DMM units to meet and replace it with
a quoting obligation better tailored to the scope of the UTP Pilot
Program and how Nasdaq Securities trade at the Exchange. The Exchange
believes that the proposed change would promote fair competition among
broker dealers by encouraging more DMM units to quote Nasdaq
Securities, thereby increasing the available liquidity in such
securities, which would benefit investors and the public.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition that are not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed change is pro-competitive because it would remove an
overly burdensome obligation that places Exchange DMM units at a
disadvantage vis-[agrave]-vis market makers on other markets because
the Exchange DMM units are unable to meet the quoting obligations, and
therefore do not trade Nasdaq Securities at the Exchange. The Exchange
further believes that the proposed change will foster competition
because it will increase the number of DMM units that would be willing
to be registered in Nasdaq Securities, thereby increasing the potential
pool of liquidity in Nasdaq Securities in the market.
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
Because the foregoing proposed rule change does not significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and, by its terms, does
not become operative for 30 days from the date on which it was filed,
or such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
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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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-NYSEMKT-2013-61 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-NYSEMKT-2013-61. 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
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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-NYSEMKT-2013-61 and should be submitted on or before
August 5, 2013.
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).
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-16820 Filed 7-12-13; 8:45 am]
BILLING CODE 8011-01-P