Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving Proposed Rule Change Pertaining to the Imposition of Fines for Minor Rule Violations, 14543-14544 [E8-5352]

Download as PDF Federal Register / Vol. 73, No. 53 / Tuesday, March 18, 2008 / Notices NASDAQ–2007–080) be, and hereby is, approved. Although the Commission’s approval of the Trading Rules Proposal, as amended, and the Corporate Structure Proposal is final and the proposed rules are therefore effective,305 it is further ordered that the operation of NOM is conditioned on the satisfaction of the requirements below: A. Participation in National Market System Plans Relating to Options Trading. Nasdaq must join the Options Price Reporting Authority; the OLPP; the Linkage Plan; and the National Market System Plan of the Options Regulatory Surveillance Authority. B. Examination by the Commission. Nasdaq must have, and represent in a letter to the staff in the Commission’s Office of Compliance Inspections and Examinations (‘‘OCIE’’) that it has, adequate surveillance procedures and programs in place to effectively regulate NOM. C. Delegation Agreement. Nasdaq and NOM LLC must enter into the Delegation Agreement as described above.306 It is further ordered, pursuant to Section 11A(b) of the Act,307 that NOM LLC shall be exempt from registering as a securities information processor, subject to the conditions specified in this order. It is further ordered, pursuant to Section 36 of the Act,308 that Nasdaq shall be exempt from the rule filing requirements of Section 19(b) of the Act 309 with respect to the rules that Nasdaq proposes to incorporate by reference into NOM’s Rules, subject to the conditions specified in this order. By the Commission. Nancy M. Morris, Secretary. [FR Doc. E8–5320 Filed 3–17–08; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57469; File No. SR– NYSEArca–2008–08)] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving Proposed Rule Change Pertaining to the Imposition of Fines for Minor Rule Violations March 11, 2008. On January 18, 2008, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend NYSE Arca Rule 6.24, ‘‘Exercise of Options Contracts,’’ and NYSE Arca Rule 10.12 ‘‘Minor Rule Plan.’’ The proposed rule change was published for comment in the Federal Register on February 5, 2008.3 The Commission received no comments regarding the proposal. This order approves the proposed rule change. NYSE Arca Rule 6.24 contains special procedures that apply to the exercise of options on the last business day before expiration. The Exchange proposes to amend NYSE Arca Rule 6.24 to: (i) Add a reference to new terminology; (ii) make minor revisions to the procedures related to exercising option contracts; (iii) amend Commentary .08 of NYSE Arca Rule 6.24 to authorize the Exchange to sanction an OTP Holder or OTP Firm that fails to follow NYSE Arca Rule 6.24, pursuant to the Minor Rule Plan (‘‘MRP’’); and (iv) add the recommended sanctions to the MRP contained in NYSE Arca Rule 10.12. An option holder desiring to exercise or not exercise expiring options must either: (i) take no action and allow exercise determinations to be made in accordance with the Options Clearing Corporation’s (‘‘OCC’’) Ex-by-Ex procedures, where applicable; or (ii) submit a Contrary Exercise Advice (‘‘CEA’’) to the Exchange.4 A CEA is also referred to within the options industry as an Expiring Exercise Declaration (‘‘EED’’). While the form itself may be called by a different name, the purpose and procedure for submitting an EED is identical to that of a CEA. Therefore, the Exchange proposes adding a parenthetical reference to EEDs within NYSE Arca Rule 6.24. An OTP Holder or OTP Firm that manually submits a CEA to the Exchange does so by completing a form and putting it in the Exchange’s Contrary Exercise Advice Box. Going forward, the Exchange will discontinue the use of the Contrary Exercise Advice Box; and instead, an OTP Holder or OTP Firm will submit a CEA directly to a designated representative of the Exchange’s Options Surveillance Department. Commentary .08 to NYSE Arca Rule 6.24 provides that the failure of any OTP Holder to follow the provisions contained in this rule may be referred to the Ethics and Business Conduct Committee (‘‘EBCC’’) and result in the assessment of a fine, which may include, but is not limited to, the disgorgement of potential economic gain obtained or loss avoided by the subject exercise. Referral to the EBCC involves a formal disciplinary proceeding. NYSE Arca proposes to add a provision to Commentary .08 that would authorize the Exchange to sanction an OTP Holder or OTP Firm that fails to follow NYSE Arca Rule 6.24, pursuant to the MRP. The Exchange would retain the authority to refer violators to the EBCC for formal disciplinary proceedings. The Exchange also proposes adding the phrase ‘‘or OTP Firm’’ to Commentary .08 to NYSE Arca Rule 6.24. The Exchange has always intended to apply NYSE Arca Rule 6.24 equally to both OTP Holders and OTP Firms. The addition of OTP Firms will codify the original intent of the NYSE Arca Rule 6.24. Under this proposal, violators of the NYSE Arca Rule 6.24 may be subject to MRP fines based on the number of violations occurring within a rolling 24month period. An individual OTP Holder would be subject to a fine of $500 for the first offense, $1,000 for the second offense, and $2,500 for the third offense. An OTP Firm would be subject to a $1,000 fine for the first offense, $2,500 for the second offense, and $5,000 for a third offense.5 A list of the proposed fines would be added to the MRP fine schedule in NYSE Arca Rule 10.12. The addition of a sanction under the MRP adds an additional method for disciplining violators of NYSE Arca Rule 6.24.6 The Exchange submits that mstockstill on PROD1PC66 with NOTICES 1 15 305 As noted above, the $1 Strike Price Program, which is part of the Trading Rules Proposal, is approved on a pilot basis through June 5, 2008. 306 See supra note 15 and accompanying text. 307 15 U.S.C. 78k–1(b). 308 15 U.S.C. 78mm. 309 15 U.S.C. 78s(b). VerDate Aug<31>2005 17:39 Mar 17, 2008 Jkt 214001 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 57220 (January 29, 2008), 73 FR 6757. 4 A CEA is a communication to either: (i) Not exercise an option that would be automatically exercised under OCC’s Ex-by-Ex procedure, or (ii) exercise an option that would not be automatically exercised under OCC’s Ex-by-Ex procedure. 14543 2 17 PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 5 The Exchange, in its discretion, processes subsequent violations, after the third violation, according to NYSE Arca Rule 10.4. See NYSE Arca Rule 10.12(h), n.1. 6 In addition, as a member of the Intermarket Surveillance Group, the Exchange, as well as certain other self-regulatory organizations (‘‘SROs’’) E:\FR\FM\18MRN1.SGM Continued 18MRN1 14544 Federal Register / Vol. 73, No. 53 / Tuesday, March 18, 2008 / Notices mstockstill on PROD1PC66 with NOTICES it will continue to conduct surveillance with due diligence and make its determination, on a case by case basis, whether a fine under the MRP is appropriate, or whether a violation should be subject to formal disciplinary proceedings. Finally, the Exchange proposes to use NYSE Arca Rule 10.12(h)(33) and Rule 10.12(k)(i)(33), which are presently designated as ‘‘Reserved,’’ for new NYSE Arca Rule 10.12(h)(33), which would reference CEA/EED violations pursuant to Rule 6.24, and new NYSE Arca Rule 10.12(k)(i)(33), which would include the recommended fines for CEA/EED violations. The Commission finds 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.7 In particular, the Commission believes that the proposal is consistent with Section 6(b)(5) of the Act,8 which requires that the rules of an exchange be designed to promote just and equitable principles of trade, to facilitate transactions in securities, 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. The Commission further believes that NYSE Arca’s proposal to sanction individuals and member organizations who fail to submit Advice Cancel or exercise instructions in a timely manner is consistent with Sections 6(b)(1) and 6(b)(6) of the Act,9 which require that the rules of an exchange enforce compliance with, and provide appropriate discipline for, violations of Commission and Exchange rules. In addition, the Commission finds that the proposal is consistent with the public interest, the protection of investors, or otherwise in furtherance of the purposes of the Act, as required by Rule 19d– 1(c)(2) under the Act,10 which governs minor rule violation plans. The Commission believes that the proposed rule change should strengthen the Exchange’s ability to carry out its oversight and enforcement responsibilities as an SRO in cases where full disciplinary proceedings are unsuitable in view of the minor nature of the particular violation. In approving this proposed rule change, the Commission in no way minimizes the importance of compliance with NYSE Arca rules and all other rules subject to the imposition of fines under the MRVP. The Commission believes that the violation of any SRO rules, as well as Commission rules, is a serious matter. However, the MRVP provides a reasonable means of addressing rule violations that do not rise to the level of requiring formal disciplinary proceedings, while providing greater flexibility in handling certain violations. The Commission expects that NYSE Arca would continue to conduct surveillance with due diligence and make a determination based on its findings, on a case-by-case basis, whether a fine of more or less than the recommended amount is appropriate for a violation under the NYSE Arca MRVP or whether a violation requires formal disciplinary action. It is therefore ordered, pursuant to Section 19(b)(2) of the Act 11 and Rule 19d–1(c)(2) under the Act,12 that the proposed rule change (SR–NYSEArca– 2008–08) be, and hereby is, approved and declared effective. executed and filed on October 29, 2007 with the Commission, a final version of an Agreement pursuant to Section 17(d) of the Act (the ‘‘17d–2 Agreement’’). As set forth in the 17d–2 Agreement, the SROs have agreed that their respective rules concerning the filing of Expiring Exercise Declarations, also referred to as Contrary Exercise Advices, of options contracts, are common rules. As a result, the proposal to amend NYSE Arca’s MRVP will result in further consistency in sanctions among the SROs that are signatories to the 17d–2 Agreement concerning Contrary Exercise Advice violations. 7 In approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 8 15 U.S.C. 78f(b)(5). 9 15 U.S.C. 78f(b)(1) and 78f(b)(6). 10 17 CFR 240.19d–1(c)(2). [Release No. 34–57482; File No. SR–Phlx– 2007–69] VerDate Aug<31>2005 17:39 Mar 17, 2008 Jkt 214001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Florence E. Harmon, Deputy Secretary. [FR Doc. E8–5352 Filed 3–17–08; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 Thereto, Relating to Obvious Errors March 12, 2008. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 U.S.C. 78s(b)(2). CFR 240.19d–1(c)(2). 13 17 CFR 200.30–3(a)(12); 17 CFR 200.30– 3(a)(44). (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on September 4, 2007, the Philadelphia Stock Exchange, Inc. filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been substantially prepared by the Exchange. The Phlx filed Amendment No. 1 to the proposal on February 29, 2008. On March 11, 2008, the Phlx filed Amendment No. 2 to the proposal. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Exchange Rule 1092, Obvious Errors, to: (i) Change the definition of Theoretical Price to mean either the last National Best Bid price with respect to an erroneous sell transaction or the last National Best Offer price with respect to an erroneous buy transaction, just prior to the trade; (ii) allow an Options Exchange Official 3 to establish the Theoretical Price when there are no quotes for comparison purposes, or when the National Best Bid/Offer (‘‘NBBO’’) for the affected series, just prior to the erroneous transaction, was at least two times the permitted bid/ask differential under Exchange Rule 1014(c)(1)(A)(i)(a); (iii) establish the Theoretical Price for transactions occurring as part of the Exchange’s automated opening system as the first quote after the transaction(s) in question that does not reflect the erroneous transaction(s); (iv) determine the average quote width by adding the quote widths of sample quotations at regular 15-second intervals during the two minutes preceding and following an erroneous transaction; (v) delete the provision pertaining to trades that are automatically executed when the specialist or Registered Options Trader (‘‘ROT’’) sells $.10 or more below parity; (vi) permit nullification of transactions that occur during trading halts on the Exchange or in the underlying security in certain situations; and (vii) increase the time period within which a party to an erroneous transaction must notify Market Surveillance that they believe they are a party to a transaction resulting from an obvious error, and 11 15 12 17 PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 115 U.S.C. 78s(b)(1). CFR 240.19b–4. 3See Exchange Rule 1(pp). 217 E:\FR\FM\18MRN1.SGM 18MRN1

Agencies

[Federal Register Volume 73, Number 53 (Tuesday, March 18, 2008)]
[Notices]
[Pages 14543-14544]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-5352]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57469; File No. SR-NYSEArca-2008-08)]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving 
Proposed Rule Change Pertaining to the Imposition of Fines for Minor 
Rule Violations

March 11, 2008.
    On January 18, 2008, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend NYSE Arca Rule 6.24, ``Exercise of 
Options Contracts,'' and NYSE Arca Rule 10.12 ``Minor Rule Plan.'' The 
proposed rule change was published for comment in the Federal Register 
on February 5, 2008.\3\ The Commission received no comments regarding 
the proposal. This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57220 (January 29, 
2008), 73 FR 6757.
---------------------------------------------------------------------------

    NYSE Arca Rule 6.24 contains special procedures that apply to the 
exercise of options on the last business day before expiration. The 
Exchange proposes to amend NYSE Arca Rule 6.24 to: (i) Add a reference 
to new terminology; (ii) make minor revisions to the procedures related 
to exercising option contracts; (iii) amend Commentary .08 of NYSE Arca 
Rule 6.24 to authorize the Exchange to sanction an OTP Holder or OTP 
Firm that fails to follow NYSE Arca Rule 6.24, pursuant to the Minor 
Rule Plan (``MRP''); and (iv) add the recommended sanctions to the MRP 
contained in NYSE Arca Rule 10.12.
    An option holder desiring to exercise or not exercise expiring 
options must either: (i) take no action and allow exercise 
determinations to be made in accordance with the Options Clearing 
Corporation's (``OCC'') Ex-by-Ex procedures, where applicable; or (ii) 
submit a Contrary Exercise Advice (``CEA'') to the Exchange.\4\ A CEA 
is also referred to within the options industry as an Expiring Exercise 
Declaration (``EED''). While the form itself may be called by a 
different name, the purpose and procedure for submitting an EED is 
identical to that of a CEA. Therefore, the Exchange proposes adding a 
parenthetical reference to EEDs within NYSE Arca Rule 6.24.
---------------------------------------------------------------------------

    \4\ A CEA is a communication to either: (i) Not exercise an 
option that would be automatically exercised under OCC's Ex-by-Ex 
procedure, or (ii) exercise an option that would not be 
automatically exercised under OCC's Ex-by-Ex procedure.
---------------------------------------------------------------------------

    An OTP Holder or OTP Firm that manually submits a CEA to the 
Exchange does so by completing a form and putting it in the Exchange's 
Contrary Exercise Advice Box. Going forward, the Exchange will 
discontinue the use of the Contrary Exercise Advice Box; and instead, 
an OTP Holder or OTP Firm will submit a CEA directly to a designated 
representative of the Exchange's Options Surveillance Department.
    Commentary .08 to NYSE Arca Rule 6.24 provides that the failure of 
any OTP Holder to follow the provisions contained in this rule may be 
referred to the Ethics and Business Conduct Committee (``EBCC'') and 
result in the assessment of a fine, which may include, but is not 
limited to, the disgorgement of potential economic gain obtained or 
loss avoided by the subject exercise. Referral to the EBCC involves a 
formal disciplinary proceeding. NYSE Arca proposes to add a provision 
to Commentary .08 that would authorize the Exchange to sanction an OTP 
Holder or OTP Firm that fails to follow NYSE Arca Rule 6.24, pursuant 
to the MRP. The Exchange would retain the authority to refer violators 
to the EBCC for formal disciplinary proceedings.
    The Exchange also proposes adding the phrase ``or OTP Firm'' to 
Commentary .08 to NYSE Arca Rule 6.24. The Exchange has always intended 
to apply NYSE Arca Rule 6.24 equally to both OTP Holders and OTP Firms. 
The addition of OTP Firms will codify the original intent of the NYSE 
Arca Rule 6.24.
    Under this proposal, violators of the NYSE Arca Rule 6.24 may be 
subject to MRP fines based on the number of violations occurring within 
a rolling 24-month period. An individual OTP Holder would be subject to 
a fine of $500 for the first offense, $1,000 for the second offense, 
and $2,500 for the third offense. An OTP Firm would be subject to a 
$1,000 fine for the first offense, $2,500 for the second offense, and 
$5,000 for a third offense.\5\ A list of the proposed fines would be 
added to the MRP fine schedule in NYSE Arca Rule 10.12. The addition of 
a sanction under the MRP adds an additional method for disciplining 
violators of NYSE Arca Rule 6.24.\6\ The Exchange submits that

[[Page 14544]]

it will continue to conduct surveillance with due diligence and make 
its determination, on a case by case basis, whether a fine under the 
MRP is appropriate, or whether a violation should be subject to formal 
disciplinary proceedings.
---------------------------------------------------------------------------

    \5\ The Exchange, in its discretion, processes subsequent 
violations, after the third violation, according to NYSE Arca Rule 
10.4. See NYSE Arca Rule 10.12(h), n.1.
    \6\ In addition, as a member of the Intermarket Surveillance 
Group, the Exchange, as well as certain other self-regulatory 
organizations (``SROs'') executed and filed on October 29, 2007 with 
the Commission, a final version of an Agreement pursuant to Section 
17(d) of the Act (the ``17d-2 Agreement''). As set forth in the 17d-
2 Agreement, the SROs have agreed that their respective rules 
concerning the filing of Expiring Exercise Declarations, also 
referred to as Contrary Exercise Advices, of options contracts, are 
common rules. As a result, the proposal to amend NYSE Arca's MRVP 
will result in further consistency in sanctions among the SROs that 
are signatories to the 17d-2 Agreement concerning Contrary Exercise 
Advice violations.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to use NYSE Arca Rule 10.12(h)(33) 
and Rule 10.12(k)(i)(33), which are presently designated as 
``Reserved,'' for new NYSE Arca Rule 10.12(h)(33), which would 
reference CEA/EED violations pursuant to Rule 6.24, and new NYSE Arca 
Rule 10.12(k)(i)(33), which would include the recommended fines for 
CEA/EED violations.
    The Commission finds 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.\7\ In 
particular, the Commission believes that the proposal is consistent 
with Section 6(b)(5) of the Act,\8\ which requires that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
to facilitate transactions in securities, 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.
---------------------------------------------------------------------------

    \7\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission further believes that NYSE Arca's proposal to 
sanction individuals and member organizations who fail to submit Advice 
Cancel or exercise instructions in a timely manner is consistent with 
Sections 6(b)(1) and 6(b)(6) of the Act,\9\ which require that the 
rules of an exchange enforce compliance with, and provide appropriate 
discipline for, violations of Commission and Exchange rules. In 
addition, the Commission finds that the proposal is consistent with the 
public interest, the protection of investors, or otherwise in 
furtherance of the purposes of the Act, as required by Rule 19d-1(c)(2) 
under the Act,\10\ which governs minor rule violation plans. The 
Commission believes that the proposed rule change should strengthen the 
Exchange's ability to carry out its oversight and enforcement 
responsibilities as an SRO in cases where full disciplinary proceedings 
are unsuitable in view of the minor nature of the particular violation.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
    \10\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

    In approving this proposed rule change, the Commission in no way 
minimizes the importance of compliance with NYSE Arca rules and all 
other rules subject to the imposition of fines under the MRVP. The 
Commission believes that the violation of any SRO rules, as well as 
Commission rules, is a serious matter. However, the MRVP provides a 
reasonable means of addressing rule violations that do not rise to the 
level of requiring formal disciplinary proceedings, while providing 
greater flexibility in handling certain violations. The Commission 
expects that NYSE Arca would continue to conduct surveillance with due 
diligence and make a determination based on its findings, on a case-by-
case basis, whether a fine of more or less than the recommended amount 
is appropriate for a violation under the NYSE Arca MRVP or whether a 
violation requires formal disciplinary action.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\11\ and Rule 19d-1(c)(2) under the Act,\12\ that the proposed rule 
change (SR-NYSEArca-2008-08) be, and hereby is, approved and declared 
effective.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 17 CFR 240.19d-1(c)(2).
    \13\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(44).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-5352 Filed 3-17-08; 8:45 am]
BILLING CODE 8011-01-P