Self-Regulatory Organizations; NYSE Alternext US LLC; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Use Its Broker Dealer Affiliate, Archipelago Securities, LLC, as Its Routing Broker, 73363-73368 [E8-28497]
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Federal Register / Vol. 73, No. 232 / Tuesday, December 2, 2008 / Notices
jlentini on PROD1PC65 with NOTICES
Securities to the NYSE in its capacity as
a facility of NYSE Alternext. Pursuant to
this agreement, FINRA is allocated
regulatory responsibilities to review
Arca Securities’ compliance with
certain NYSE rules.22
• Second, NYSE Regulation 23 will
monitor Arca Securities for compliance
with the NYSE’s trading rules, and will
collect and maintain certain related
information.24
• Third, the NYSE states that NYSE
Regulation has agreed with the NYSE
that it will provide a report to the
NYSE’s CRO, on a quarterly basis, that:
(i) Quantifies all alerts (of which NYSE
Regulation is aware) that identify Arca
Securities as a participant that has
potentially violated NYSE or
Commission rules, and (ii) quantifies
the number of all investigations that
identify Arca Securities as a participant
that has potentially violated NYSE or
Commission rules.25
• Fourth, NYSE Rule 2B(2), which
requires NYSE Euronext, as the holding
company owning both the NYSE and
Arca Securities, to establish and
maintain procedures and internal
controls reasonably designed to ensure
that Arca Securities does not develop or
implement changes to its system, based
on non-public information obtained
regarding planned changes to NYSE
systems as a result of its affiliation with
the NYSE, until such information is
available generally to similarly situated
members of NYSE, in connection with
the provision of inbound order routing
to the NYSE, will apply.26
• Fifth, the NYSE proposes that
routing from Arca Securities to NYSE,
in Arca Securities’s capacity as a facility
of NYSE Alternext, be authorized for a
pilot period to run concurrently with a
22 NYSE Arca also states that Arca Securities is
subject to independent oversight by FINRA, its
Designated Examining Authority, for compliance
with financial responsibility requirements. See
supra section II.A.1.
23 NYSE Regulation is a wholly owned subsidiary
of the NYSE that performs the regulatory functions
of the NYSE pursuant to a delegation agreement.
NYSE Regulation also performs many of the
regulatory functions of NYSE pursuant to a
regulatory services agreement. See Securities
Exchange Act Release No. 53382 (February 27,
2006), 71 FR 11251 (March 6, 2006) (SR–NYSE–
2005–77) (‘‘NYSE/Arca Order’’) at 11255.
24 Specifically, NYSE Regulation ‘‘will collect and
maintain the following information of which NYSE
Regulation staff becomes aware—namely, all alerts,
complaints, investigations and enforcement actions
where Arca Securities (in its capacity as a facility
of both the NYSE Arca and NYSE Alternext, routing
orders to NYSE Arca) is identified as a participant
that has potentially violated NYSE or applicable
SEC rules—in an easily accessible manner so as to
facilitate any review conducted by the SEC’s Office
of Compliance Inspections and Examination.’’ See
supra section II.A.1.
25 See supra section II.A.1.
26 See id. See also NYSE Rule 2B(2).
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twelve month pilot period for the
NYSE’s receipt of ‘‘PO+’’ orders from
Arca Securities, which commenced on
September 29, 2008.27
The Commission believes that these
conditions mitigate its concerns about
potential conflicts of interest and unfair
competitive advantage. In particular, the
Commission believes that FINRA’s
oversight of Arca Securities,28 combined
with NYSE Regulation’s monitoring of
Arca Securities’ compliance with the
NYSE’s trading rules and quarterly
reporting to the NYSE’s CRO, will help
to protect the independence of the
NYSE’s regulatory responsibilities with
respect to Arca Securities. Furthermore,
the Commission believes that the
NYSE’s proposal to allow Arca
Securities to route orders inbound to the
NYSE from NYSE Alternext, on a pilot
basis, will provide the NYSE and the
Commission an opportunity to assess
the impact of any conflicts of interest of
allowing an affiliated member of the
NYSE to route orders inbound to the
NYSE and whether such affiliation
provides an unfair competitive
advantage.
The NYSE has asked the Commission
to accelerate approval of the proposed
rule change. The NYSE in part that the
proposed changes are ‘‘required due to
NYSE Alternext’s planned
implementation of a new trading system
and the use of Arca Securities as its
outbound routing facility.’’29 The NYSE
also states that accelerated approval
‘‘will permit the Exchange to amend its
mechanisms that are designed to
address the Commission’s concerns
regarding affiliated members in time to
provide these protections at the time of
NYSE Alternext’s implementation of its
new trading system, which is targeted
for December 1, 2008.’’ 30 The
Commission finds good cause for
approving the proposed rule change
before the thirtieth day after the date of
publication of notice of filing thereof in
the Federal Register. The Commission
notes that the protections proposed by
the NYSE, which are designed to
address conflicts of interest concerns
identified by the Commission in
connection with the inbound routing of
orders to an exchange when the routing
broker-dealer is an affiliate of that
exchange, are substantially the same as
the conditions the Exchange currently
has in place to address inbound routing
from NYSE Arca, which were
previously approved by the
27 See
supra note 8 and accompanying text.
oversight will be accomplished through
the 17d–2 agreement between FINRA and NYSE.
29 See SR–NYSE–2008–122, Item 7.
30 Id.
28 This
PO 00000
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73363
Commission.31 The Commission also
notes that no comments were received
in connection with SR–NYSE–2008–76.
Accordingly, the Commission finds
good cause, consistent with section
19(b)(2) of the Act,32 to approve the
proposed rule change on an accelerated
basis for a pilot period expiring
September 29, 2009.
V.Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act, that the
proposed rule change (SR–NYSE–2008–
122) is hereby approved on an
accelerated basis for a pilot period to
expire on September 29, 2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E8–28499 Filed 12–1–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59009; File No. SR–
NYSEALTR–2008–07]
Self-Regulatory Organizations; NYSE
Alternext US LLC; Notice of Filing and
Order Granting Accelerated Approval
of Proposed Rule Change, as Modified
by Amendment No. 1 Thereto, To Use
Its Broker Dealer Affiliate, Archipelago
Securities, LLC, as Its Routing Broker
November 24, 2008.
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 November
19, 2008, NYSE Alternext US LLC
(‘‘NYSE Alternext’’ or ‘‘Exchange’’) 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. On
November 20, 2008, the Exchange
submitted Amendment No. 1 to the
proposed rule change. The Commission
is publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons,
and is granting accelerated approval to
31 See Securities Exchange Act Release No. 58680,
supra note 3. See also Securities Exchange Act
Release Nos. 58673, supra note 5, and 58681, supra
note 19, (establishing similar protections for
inbound routing from Arca Securities to Alternext
and NYSE Arca, respectively).
32 15 U.S.C. 78s(b)(2).
33 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 73, No. 232 / Tuesday, December 2, 2008 / Notices
Exchange’s principal office and at the
Commission’s Public Reference Room.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing to use its
broker dealer affiliate,3 Archipelago
Securities LLC (‘‘ArcaSec’’), as its
Routing Broker to route orders 4 to away
market centers when that market center
is displaying the national best bid and
offer in accordance with Exchange Rules
and SEC Regulation National Market
System 5 (‘‘Reg. NMS’’). The Exchange
further proposes to have its Routing
Broker facilitate the acceptance of
executions that result in an odd-lot or
sub-penny executions. A copy of this
filing is available on the Exchange’s
Web site at https://www.nyse.com, at the
jlentini on PROD1PC65 with NOTICES
the proposed rule change, as modified
by Amendment No. 1.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
3 On September 29, 2008, the Commission
approved the Exchange’s business combination
with NYSE Euronext, Inc. (‘‘Merger’’). See,
Securities Exchange Act Release No. 34–58673
(September 29, 2008), 73 FR 57707 (October 3,
2008) (order approving SR–NYSE–2008–60 and SR–
Amex–2008–62). Pursuant to the Merger, NYSE
Euronext became the overall parent company of the
Exchange. NYSE Euronext now operates three selfregulatory entities: The Exchange, the NYSE, and
NYSE Arca, Inc. ArcaSec, the approved outbound
order routing facility of both the NYSE and NYSE
Arca, Inc., is also a wholly owned subsidiary of
NYSE Euronext, and is therefore an affiliate of the
Exchange.
4 ArcaSec currently acts as the outbound order
routing facility of the NYSE and NYSE Arca. See,
Securities Exchange Act Release No. 52497
(September 22, 2005), 70 FR 56949 (September 29,
2005) (SR–PCX–2005–90); see also, Securities
Exchange Act Release No. 44983 (October 25, 2001),
66 FR 55225 (November 1, 2001) (SR–PCX–00–25);
see also, Securities Exchange Act Release No. 58681
(September 29, 2008), 73 FR 58285 (October 6,
2008) (order approving NYSEArca–2008–90).
ArcaSec also currently acts as the outbound order
routing facility of the NYSE. See, Securities
Exchange Act Release No. 34–55590 (April 5, 2007),
72 FR 18707 (April 13, 2007) (notice of immediate
effectiveness of SR–NYSE–2007–29); see also,
Securities and Exchange Act Release No. 34–58680
(September 29, 2008), 73 FR 58283 (October 6,
2008) (order approving SR–NYSE–2008–76).
Currently, FINRA is the examining authority for the
Routing Broker designated by the Commission
pursuant to Rule 17d–1 of the Act. As such, FINRA
is responsible for the oversight and enforcement of
the Routing Broker for compliance with the
applicable financial responsibility rules.
On January 25, 2007, NYSE Arca, Inc. filed with
the Commission to allow ArcaSec to act as a
marketing agent on behalf of NYSE Arca Tech 100
Index and NYSE Arca Tech 100 ETF. This proposed
business activity has no connection to ArcaSec’s
facility functions as described above. See Securities
and Exchange Act Release No. 55442 (March 12,
2007), 72 FR 12654 (March 16, 2007) (order
approving SR–NYSEArca–2007–09).
5 See Securities Exchange Act Release No. 51808
(June 9, 2005), 17 CFR Parts 200, 201, 230, 240, 242,
249 and 270; see also, 70 FR 374496 (June 29, 2005).
Pursuant to Reg. NMS the Exchange, among other
things, must: (i) ‘‘Establish, maintain, and enforce
written policies and procedures reasonably
designed to prevent the execution of trades at prices
inferior to protected quotations displayed by other
trading centers’’ and (ii) provide access to the
trading center displaying the protected quotations.
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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 III 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 is proposing to use
ArcaSec as its Routing Broker to route
orders to away market centers when that
market center is displaying the national
best bid and offer in accordance with
Exchange Rules and Reg. NMS.6
Through this filing the Exchange further
proposes to otherwise have its Routing
Broker facilitate the acceptance of
executions that result in an odd-lot 7 or
a sub-penny 8 execution after the
Routing Broker routed an Exchange
order to an away market center.
Presently, the Exchange employs an unaffiliated broker-dealer for purposes of
routing orders to away market centers in
furtherance of Reg. NMS compliance.
The Exchange intends to use ArcaSec as
its Routing Broker, pending approval, as
of the date that the Exchange
implements its new electronic trading
system in conjunction with the opening
6 The Exchange is not proposing at this time to
use ArcaSec as its routing broker to route option
orders to away market centers.
7 Odd-lot orders are orders for a size less than the
standard unit (round-lot) of trading, which is 100
shares for most stocks, although some stocks trade
in 10 share units.
8 It should be noted that the Exchange’s current
electronic trading system can handle odd-lot and
sub-penny executions. Upon transfer to its new
electronic system, which is based on the NYSE’s
existing system, the Exchange will require that its
Routing Broker facilitate these transactions until
such time as the platform is modified. Recently, the
NYSE modified its electronic trading system in
order to accommodate away market center
executions in sub-pennies; implementation of this
modification should substantially reduce the need
for ArcaSec to facilitate sub-penny executions on
behalf of NYSE Alternext. See Securities Exchange
Act Release No. 34–58936 (November 13, 2008)
(notice of filing and immediate effectiveness of SR–
NYSE–2008–117).
PO 00000
Frm 00125
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Sfmt 4703
of its new trading floor at 11 Wall Street
in New York, New York.
Rule 2B—NYSE Alternext Equities
provides, in pertinent part, that:
without prior approval by the Securities and
Exchange Commission, the Exchange or any
entity with which it is affiliated shall not,
directly or indirectly, acquire or maintain an
ownership interest in a member organization.
In its Order approving the acquisition
of the American Stock Exchange LLC by
NYSE Euronext, the SEC, among other
things, approved the affiliation between
NYSE Alternext and ArcaSec, subject to
certain conditions.9 By that Order, the
SEC also approved revisions to
Exchange Rule 1(b), in order to address
inbound routing by affiliated
members.10 The Exchange also recently
received approval to implement Rules
13 and 17—NYSE Alternext Equities,
which define the term Routing Broker
and establish the conditions under
which the Exchange’s Routing Broker
shall operate.11 In that filing, the
Exchange sought to revise its equities
rules to substantially mirror those of the
New York Stock Exchange LLC
(‘‘NYSE’’), including NYSE Rule 2B.
Unfortunately, certain text of Rule 2B—
NYSE Alternext Equities was
inadvertently omitted as part of the
intended revision. The Exchange seeks
to rectify this omission and revise Rule
2B—NYSE Alternext Equities (in
keeping with its prior intent) so that it
mirrors NYSE Rule 2B.12 Accordingly,
as set forth in Exhibit 5 attached hereto,
Rule 2B—NYSE Alternext Equities shall
provide as follows:
The holding company owning both the
Exchange and Archipelago Securities L.L.C.
shall establish and maintain procedures and
internal controls reasonably designed to
ensure that Archipelago Securities, L.L.C.
does not develop or implement changes to its
system on the basis of non-public
information regarding planned changes to
Exchange systems, obtained as a result of its
affiliation with the Exchange, until such
information is available generally to similarly
situated members of the Exchange in
connection with the provision of inbound
order routing to the Exchange.
9 See, Securities Exchange Act Release No. 34–
58673 (September 29, 2008), 73 FR 57707 (October
3, 2008) (order approving SR–Amex–2008–62).
10 Id. Rule 1(b) remains effective for trading that
continues at 86 Trinity on legacy systems until the
options relocation scheduled for February 2009.
Rule 2B—NYSE Alternext Equities will apply to all
trading conducted on its new equities platform to
be implemented in conjunction with its move to 11
Wall Street on December 1, 2008.
11 See, Securities Exchange Act Release No. 34–
58705 (October 1, 2008), 73 FR 58995 (October 8,
2008) (order approving SR–AMEX–2008–63).
12 Please note, NYSE Rule 2B matches previously
approved Alternext Rule 1 in its entirety. The
Exchange is not seeking to make any substantive
changes, but simply seeks to rectify an inadvertent
omission of rule text.
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jlentini on PROD1PC65 with NOTICES
Pursuant to Rule 2B—NYSE Alternext
Equities, as revised herein, the
Exchange now seeks authorization to
use ArcaSec, an affiliated broker-dealer,
to operate as its Routing Broker.
Pursuant to the proposal, the
Exchange systems will provide the
Routing Broker with routing
instructions, to route orders to other
market centers and report such
executions back to the Exchange. The
Routing Broker cannot change the terms
of an order or the routing instructions,
nor does the Routing Broker have any
discretion about where to route an
order.
The Routing Broker will operate as a
‘‘facility’’ 13 of the Exchange in that it
will serve as a ‘‘system of
communication to or from’’ 14 the
Exchange. When an order must be
routed to an away market center for
execution, the Exchange systems will
affix all order handling information to
the order. Exchange systems will
automatically transmit the order and the
relevant order handling information to
the Routing Broker. In turn, the Routing
Broker will facilitate the delivery of the
received order to the destination away
market. The Routing Broker will obtain
receipts of executions and deliver those
receipts of executions back to Exchange
systems.15 The Routing Broker, as
merely a conduit between the Exchange
and away market centers, cannot change
the terms of an order, systemically reject
an order, or otherwise perform data
validation prior to delivery of the order
to an away market center or after return
receipt and delivery of the execution to
the Exchange.
In particular, and without limitation,
under the Act, the exchange will be
responsible for filing with the
Commission rule changes and fees
relating to the functions performed by
the Routing Broker for the Exchange and
will be subject to exchange nondiscrimination requirements.
Furthermore, the books, records,
premises, officers, agents, directors, and
13 The term ‘‘facility’’ as defined in Section 3(a)(2)
of the Securities Exchange Act of 1934, as amended
provides,
* * * when used with respect to an exchange
includes its premises, tangible or intangible
property whether on the premises or not, any right
to the use of such premises or property or any
service thereof for the purpose of effecting or
reporting a transaction on an exchange (including,
among other things, any system of communication
to or from the exchange, by ticker or otherwise,
maintained by or with the consent of the exchange),
and any right of the exchange to the use of any
property or service. See, 15 U.S.C. 78c.
14 Id.
15 Comparable to the operation of ArcaSec in its
capacity as a facility of the NYSE and NYSE Arca,
the use of ArcaSec by the Exchange will only be
available to members of NYSE Alternext.
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20:52 Dec 01, 2008
Jkt 217001
employees of the Routing Broker, as a
facility of the Exchange, shall be
deemed to be the books, records,
premises, officers, agents, directors, and
employees of the Exchange for purposes
of, and subject to oversight pursuant to,
the Act. The books and records of the
Routing Broker as a facility of the
Exchange shall be subject at all times to
inspection and copying by the Exchange
and the Commission.
In addition to routing orders to away
market centers, the Routing Broker will
facilitate the acceptance of executions
that results in an odd-lot or a sub-penny
execution as Exchange systems will be
unable to accept such executions after
the Routing Broker routes an Exchange
order to an away market center.16 Upon
transfer to its new electronic trading
system, odd-lot orders on the Exchange
will be executed in a system that is
separate from the Exchange system
responsible for the execution of roundlot orders (‘‘the odd-lot trading
platform’’). The Exchange’s new odd-lot
trading platform will execute all oddlots orders against the specialist as the
contra party separate from the trading
system that is responsible for the
execution of round lot orders. Since
odd-lot orders will be handled in a
separate trading system, the Exchange
systems that are responsible for the
execution of round lot orders will be
unable to accept receipts of execution in
odd-lots at the present time.
Similarly, the Exchange has chosen
not to quote and trade in sub-penny
increments when permitted under Reg.
NMS.
In order to process receipts of odd lot
and sub-penny executions from an away
market, the Exchange proposes to have
the Routing Broker facilitate the
handling of such odd-lot and sub-penny
executions. Specifically, if the Routing
Broker is in receipt of an odd-lot
execution in response to the Exchange’s
routing of a round lot order, it will
assume the odd-lot position. The
Routing Broker will then sell/buy the
requested number of round lot shares to
the Exchange member. The Routing
Broker will perform this adjustment to
each odd-lot execution in order to
transmit a round lot execution to the
Exchange. The Routing Broker will
afford the Exchange order, i.e. for the
Exchange member, the most favorable
execution price based on the odd-lot
execution(s) received by Routing Broker
from the away market.
With regard to a sub-penny execution,
the Routing Broker will perform an
adjustment to each sub-penny
execution. Specifically, the Routing
16 See
PO 00000
supra note 8.
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Sfmt 4703
73365
Broker will round down for each buy
order and up for each sell order and
transmit a round penny execution to the
Exchange order. Again, the Routing
Broker will afford the Exchange order
the most favorable execution price
based on the sub-penny execution
received by Routing Broker from the
away market.
The Router Broker will liquidate
positions assumed as a result of the
services provided to the Exchange. This
service provided by the Routing Broker
with regard to odd-lot and sub-penny
executions is not intended to operate as
a means to generate revenue. Rather, the
Routing Broker is providing an
additional service to the Exchange in
order to facilitate the receipt of odd-lot
and sub-penny executions from away
market centers. To that end, it is the
intent of the Routing Broker to be flat in
all positions at the end of each trading
day.17 The Routing Broker will
incorporate an automated system to
assist, as soon as practicable, in the
liquidation (acquisition) for any residual
long (short) positions. To mitigate
financial risk 18 to the Routing Broker,
registered trading personnel of the
Routing Broker may be required to
manually assist, as soon as practicable,
in the liquidation (acquisition) of such
positions, particularly high-priced
securities that may trade with a wide
spread.
Below are examples of how the Router
Broker is intended to operate.
ODD–LOT Executions
Example 1: Exchange member Firm X
enters an order on the Exchange to buy 100
shares of ABC at $20.00. The Exchange
systems transmit the order with order
handling instructions to the Routing Broker.
The Routing Broker then transmits the order
with the order handling instructions received
from the Exchange systems to market center
A. The Routing Broker receives reports of two
odd-lot executions from market center A. The
first report of execution is for 30 shares
executed at a price of $20.00. The second
report of execution completes the original
order with an execution of the remaining 70
shares at a price of $20.00. The Routing
Broker will sell 100 shares to Exchange
member Firm X at $20.00 and use the oddlots received from market center A to offset
the position. The Routing Broker’s position is
flat.
Example 2: Exchange member Firm X
enters an order on the Exchange to buy 100
17 Absent any unusual market conditions or the
timing of such trades (for example the execution of
the order at 15:59:59) it is intended that the Routing
Broker will be flat in all positions at the end of each
trading day.
18 Any and all loses incurred during the
facilitation of odd-lot and sub-penny executions
will be assumed by the Routing Broker as part of
the routing service provided.
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Federal Register / Vol. 73, No. 232 / Tuesday, December 2, 2008 / Notices
shares of ABC at $20.00. The Exchange
systems transmit the order with order
handling instructions to the Routing Broker.
The Routing Broker then transmits the order
with the order handling instructions received
from the Exchange systems to market center
A. The Routing Broker receives two odd-lot
fills from market center A. The first report is
for 30 shares executed at a price of $19.99.
The second report of execution completes the
original with an execution of the remaining
70 shares at a price of $20.00. The Routing
Broker sells 100 shares to Firm X at $19.99
and uses the odd-lots to offset the position.
The Routing Broker’s position is flat, with a
loss of $0.70.
Example 3: Exchange member Firm X
enters an order on the Exchange to buy 100
shares of ABC at $20.00. The Exchange
systems transmit the order with order
handling instructions to the Routing Broker.
The Routing Broker then transmits the order
with the order handling instructions received
from the Exchange systems to market center
A. The Routing Broker receives an odd-lot fill
of only 30 at $20.00 and a report of
cancellation for the remaining 70 shares of
the original order. The Routing Broker will
sell 100 shares to Firm X at $20.00. In turn,
the Routing Broker will then go into the
market to buy 70 shares of ABC. The Routing
Broker receives a fill of 70 at $20.05. The
Routing Broker will then use both odd-lots
positions to offset the position taken as a
result of handling the order of Firm X. The
Routing Broker’s position is flat, with a loss
of $3.50.
Example 4: Exchange member Firm X
enters an order on the Exchange to buy 100
shares of ABC at $20.00. The Exchange
systems transmit the order with order
handling instructions to the Routing Broker.
The Routing Broker then transmits the order
with the order handling instructions received
from the Exchange systems to market center
A. The Routing Broker receives an odd-lot fill
of only 30 at $20.00 and a report of
cancellation for the remaining 70 shares of
the original order. The Routing Broker will
sell 100 shares to Firm X at $20.00. In turn,
the Routing Broker will then go into the
market to buy 70 shares of ABC. The Routing
Broker receives a fill of 70 at $19.99. The
Routing Broker will then use both odd-lots
positions to offset the position taken as a
result of handling the order of Firm X. The
Routing Broker’s position is flat, with a profit
of $0.70.
jlentini on PROD1PC65 with NOTICES
SUB-PENNY Executions
Example 1: Exchange member Firm X
enters an order on the Exchange to buy 100
shares of ABC at $20.00. The Exchange’s best
offer is $19.98. Market Center A is displaying
a best offer at $19.97. Market Center A also
offers a mid-point match execution process
that may result in a trade price that includes
sub-pennies. The Exchange systems transmit
the order with order handling instructions to
the Routing Broker. The Routing Broker then
transmits the order with the order handling
instructions received from Exchange systems
to market center A. The Routing Broker
receives a fill of 100 shares at $19.965 due
to a mid-point cross occurring at market
center A. The Routing Broker will sell 100
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shares to member Firm X at $19.96 and uses
the fill of 100 shares at $19.965 to offset the
position. The Routing Broker will be flat,
with a loss of $0.50.
The use of the Routing Broker to route
orders to another market center will be
optional. In the event a member
organization does not want to use the
Routing Broker it must enter an
immediate-or-cancel order or any such
other order type available on the
Exchange that is not eligible for routing.
All bids and offers entered on the
Exchange that are routed to other market
centers via the Routing Broker which
result in an execution shall be binding
on the member organization that entered
such bid and offer.
The Routing Broker will not engage in
any business for the Exchange other
than its outbound router and facilitation
functions as described above. In the
event the Exchange seeks to have the
Routing Broker engage in any other
activities it understands that the ability
of the Routing Broker to engage in such
new business activity would require
Commission approval.
The Exchange believes that the above
described operation of the Routing
Broker will serve as the most
economically efficient execution of
securities transactions. Furthermore, the
Routing Broker is necessary for the
Exchange to comply with its obligations
pursuant to Reg. NMS.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the requirement under Section 6(b)(5) 19
of the Securities Exchange Act of 1934
(the ‘‘Act’’) 20 that an Exchange have
rules that are designed 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. The proposed rule
change also is designed to support the
principles of Section 11A(a)(1) 21 in that
it seeks to assure economically efficient
execution of securities transactions.
Specifically, the proposed rule change
will allow Exchange to establish and
implement mechanisms to remain fully
compliant with Reg. NMS and other
Exchange rules.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
this proposed rule change will impose
any burden on competition that is not
19 15
U.S.C. 78f(b)(5).
U.S.C. 78a.
21 15 U.S.C. 78k–1(a)(1).
20 15
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Fmt 4703
Sfmt 4703
necessary or appropriate in furtherance
of the purposes of the Act.
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. 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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSEALTR–2008–07 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–NYSEALTR–2008–07. This
file number should be included on the
subject line if e-mail 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 (https://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 inspection and copying in
the Commission’s Public Reference
Room, on official business days between
the hours of 10 a.m. and 3 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–
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02DEN1
Federal Register / Vol. 73, No. 232 / Tuesday, December 2, 2008 / Notices
NYSEALTR–2008–122 and should be
submitted on or before December 23,
2008
IV. Commission’s Findings and Order
Granting Accelerated Approval of a
Proposed Rule Change
jlentini on PROD1PC65 with NOTICES
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.22 In particular, it is consistent
with Section 6(b)(5) of the Act,23 which
requires, among other things, that the
rules of a national securities exchange
be 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
mechanism of a free and open market
and a national market system; and, in
general, to protect investors and the
public interest; and are not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
On September 29, 2008, the
Commission approved the Exchange’s
business combination with NYSE
Euronext.24 In conjunction with the
Merger, the Exchange proposed to
transfer trading from the American
Stock Exchange LLC system to a new
system based on NYSE’s existing
system. Accordingly, the Exchange
proposed new rules that would govern
trading on the Exchange once trading
was transferred to the new electronic
system.25 Included in those recently
approved rules were NYSE Alternext
Rules 13 and 17, which define the term
Routing Broker and establish the
conditions under which the Exchange’s
Routing Broker shall operate.26 In the
instant filing, the Exchange proposes to
use ArcaSec, an affiliated broker-dealer,
as its Routing Broker once trading is
transferred to the new electronic system.
In the past, the Commission has
expressed concern that the affiliation of
an exchange with one of its members
raises potential conflicts of interest, and
the potential for unfair competitive
22 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
23 15 U.S.C. 78f(b)(5).
24 See supra note 3.
25 See supra note 11. The Commission notes that
the Exchange intends to transfer trading to its new
system on December 1, 2008.
26 Id.
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20:52 Dec 01, 2008
Jkt 217001
advantage.27 Although the Commission
continues to be concerned about
potential unfair competition and
conflicts of interest between an
exchange’s self-regulatory obligations
and its commercial interests when the
exchange is affiliated with one of its
members, the Commission believes that
it is consistent with the Act to permit
ArcaSec to provide outbound routing
services to NYSE Alternext, subject to
certain conditions.
NYSE Alternext Equities Rule 17
imposes certain conditions on an
Exchange Routing Broker, which would
apply to ArcaSec as the Exchange’s
outbound order router. For example,
ArcaSec must: (1) Be a member of an
self-regulatory organization unaffiliated
with NYSE Alternext that is its
designated examining authority; (2)
establish and maintain procedures and
internal controls reasonably designed to
restrict the flow of confidential and
proprietary information between NYSE
Alternext and its facilities, including
ArcaSec, and any other entity; (3) be
regulated as a facility of the Exchange; 28
and (4) not engage in any business other
than its outbound router function unless
otherwise approved by the Commission.
Also, the books, records, premises,
officers, agents, directors and employees
of ArcaSec, as a facility of NYSE
Alternext, will be deemed to be those of
the Exchange for purposes of and
subject to oversight pursuant to the
Act.29 In addition, use of ArcaSec to
route order from NYSE Alternext to
away market centers is optional, and a
NYSE Alternext member is free to route
orders to other market centers through
alternative means.
In light of the protections discussed
above and contained in NYSE Alternext
Equities Rule 17, the Commission
believes that it is consistent with the
Act to permit NYSE Alternext to use its
27 See, e.g., Securities Exchange Act Release Nos.
58673, supra note 3; 54170 (July 18, 2006), 71 FR
42149 (July 25, 2006) (SR–NASDAQ–2006–006)
(order approving Nasdaq’s proposal to adopt
Nasdaq Rule 2140, restricting affiliations between
Nasdaq and its members); and 53382 (February 27,
2006, 71 FR 11251 (March 6, 2006) (SR–NYSE–
2005–77) (order approving the combination of the
New York Stock Exchange, Inc. and Archipelago
Holdings) at 11255.
28 The Commission notes that, as a facility of the
Exchange, ArcaSec will be subject to Exchange
oversight, as well as Commission oversight. Further,
the Exchange will be responsible for filing with the
Commission proposed rule changes and fees
relating to ArcaSec’s outbound router function and
ArcaSec’s outbound router function will be subject
to exchange non-discrimination requirements.
29 See NYSE Alternext Equities Rule 17(b). In
addition, the books and records of ArcaSec, as a
facility of the Exchange, will be subject at all times
to inspection and copying by the Exchange and the
Commission. Id.
PO 00000
Frm 00128
Fmt 4703
Sfmt 4703
73367
affiliate, ArcaSec, as its Routing Broker,
as proposed.
In addition, the Exchange proposes to
have its Routing Broker facilitate the
acceptance of executions that result in
an odd-lot or a sub-penny execution of
an order that the Routing Broker routed
to an away market center. The
Commission notes that ArcaSec
currently provides these services to
NYSE in its capacity as NYSE’s
outbound order router.30 The
Commission notes that in each instance
the Routing Broker will execute the
Exchange member’s order at the most
favorable execution price based on the
odd-lot or sub-penny execution received
from the away market. The Commission
also notes that the Exchange has
represented the Routing Broker will
liquidate positions assumed as a result
of this service, with the intent to be flat
at the end of each trading day. The
Commission believes that allowing
ArcaSec to facilitate the acceptance of
executions on away markets that result
in an odd-lot or a sub-penny execution,
as proposed, is consistent with the Act
and will enable NYSE Alternext to
comply with Reg. NMS.
NYSE Alternext has asked the
Commission to accelerate approval of
the proposed rule change. NYSE
Alternext states that accelerated
approval ‘‘will permit the Exchange to
establish and implement mechanisms to
remain fully compliant with Reg. NMS
and other Exchange rules immediately
upon implementation of its new
electronic trading system and in
conjunction with the opening of its new
trading floor at 11 Wall Street.’’ 31 NYSE
Alternext notes that it ‘‘intends to
implement its new trading system and
open its new trading floor on December
1, 2008.’’ 32 The Commission finds good
cause for approving the proposed rule
change before the thirtieth day after the
date of publication of notice of filing
thereof in the Federal Register. The
Commission notes that NYSE
Alternext’s proposal to use ArcaSec as
its outbound order routing facility is
consistent with prior Commission
action.33 Accordingly, the Commission
finds good cause, consistent with
Section 19(b)(2) of the Act,34 to approve
the proposed rule change on an
accelerated basis.
30 See Securities Exchange Act Release No. 55590,
supra note 4.
31 See SR–NYSEALTR–2008–07, Item 7.
32 Id.
33 See, e.g., Securities Exchange Act Release Nos.
52497 and 55590, supra note 4.
34 15 U.S.C. 78s(b)(2).
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Federal Register / Vol. 73, No. 232 / Tuesday, December 2, 2008 / Notices
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–NYSEALTR–
2008–07), as modified by Amendment
No. 1, is hereby approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E8–28497 Filed 12–1–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–58983; File No. SR–
NYSEArca–2008–126]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and Order
Granting Accelerated Approval of
Proposed Rule Change by NYSE Arca,
Inc. Relating to Listing Shares of the
GreenHaven Continuous Commodity
Index Fund
November 20, 2008.
jlentini on PROD1PC65 with NOTICES
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
November 5, 2008, NYSE Arca, Inc.
(‘‘NYSE Arca’’ 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 selfregulatory organization. The
Commission is publishing this notice
and order to solicit comments on the
proposed rule change from interested
persons and to approve the proposed
rule change on an accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange, through its whollyowned subsidiary NYSE Arca Equities,
Inc. (‘‘NYSE Arca Equities’’), proposes
to list and trade shares (‘‘Shares’’) of the
GreenHaven Continuous Commodity
Index Fund (‘‘Fund’’) pursuant to
Commentary.02 to NYSE Arca Equities
Rule 8.200. The text of the proposed
rule change is available on the
Exchange’s Web site at https://
www.nyse.com, at the Exchange’s
principal office and at the Commission’s
Public Reference Room.
35 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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20:52 Dec 01, 2008
Jkt 217001
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.
1. Purpose
Pursuant to Commentary .02 to NYSE
Arca Equities Rule 8.200, the Exchange
may approve for listing and trading trust
issued receipts (‘‘TIRs’’) investing in
shares or securities (‘‘Investment
Shares’’) that hold investments in any
combination of futures contracts,
options on futures contracts, forward
contracts, commodities, swaps or high
credit quality short-term fixed income
securities or other securities. The
Exchange proposes to list and trade the
Shares under Commentary .02 to NYSE
Arca Equities Rule 8.200. The Shares
represent beneficial ownership interests
in the GreenHaven Continuous
Commodity Index Master Fund’s
(‘‘Master Fund’’) net assets, consisting
solely of the common units of beneficial
interest of the Master Fund (‘‘Master
Fund Units’’). The Fund’s primary
objective is to reflect the performance of
the Continuous Commodity Total
Return Index (‘‘Index’’).
The Fund is currently listed on NYSE
Alternext U.S. LLC (NYSE Alternext
U.S. (formerly, the American Stock
Exchange LLC (‘‘Amex’’)) 4 and is traded
on the Exchange pursuant to unlisted
trading privileges (‘‘UTP’’).5 Prior to
listing on the Exchange, the Fund would
be required to satisfy the applicable
delisting procedures of NYSE Alternext
U.S. and applicable statutory and
regulatory requirements, including,
without limitation, Section 12 of the
Securities Exchange Act of 1934
(‘‘Act’’),6 relating to listing the Shares
on the Exchange.7
A description of the Fund is included
in the Amex Filing, the UTP Filing, and
the Registration Statement for the
Fund.8 The Exchange represents that the
Shares satisfy the applicable
requirements of Rule 8.200, including
Commentary .02 to Rule 8.200, and
thereby qualify for listing on the
Exchange.9 The Exchange states that all
of the facts describing the Fund, the
Master Fund, Master Fund Units and
the Shares contained in the Amex Filing
are true and correct as of the date of this
filing. The Exchange states further that
the representations included in the
Amex Filing relating to the
dissemination and availability of
information regarding the Shares will
apply to listing and trading of the
Shares on the Exchange. To the extent
NYSE Alternext U.S. has any affirmative
obligations with respect to
dissemination of information or key
values relating to the Shares, the
Exchange represents that it would take
the place of NYSE Alternext U.S. in
such role and discharge such
obligations.
The Fund will comply with the
requirements of Rule 10A–3 10 under the
Act.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m.
to 8 p.m. Eastern time. The Exchange
has appropriate rules to facilitate
transactions in the Shares during all
trading sessions. The minimum trading
increment for Shares on the Exchange
will be $0.01.
The trading of the Shares will be
subject to Commentary .02(e)(1)–(4) to
NYSE Arca Equities Rule 8.200, which
sets forth certain restrictions on ETP
Holders acting as registered Market
Makers in TIRs that invest in Investment
Shares to facilitate surveillance. See
‘‘Surveillance’’ below for more
information.
With respect to trading halts, the
Exchange may consider all relevant
6 15
U.S.C. 78(l).
Exchange will seek the voluntary consent
of the issuer of the Shares to be delisted from NYSE
Alternext U.S. and listed on the Exchange. The
Exchange notes that its approval of the Fund’s
listing application would be required prior to
listing.
8 See the Fund’s Registration Statement on Form
S–1, dated November 21, 2007 (No. 333–138424)
(‘‘Registration Statement’’).
9 See November 13 e-mail, supra, note 4.
10 17 CFR 240.10A–3.
7 The
4 See Securities Exchange Act Release No. 56969
(December 14, 2007), 72 FR 72424 (December 20,
2007) (SR–Amex–2007–53) (‘‘Amex Filing’’). See email from Michael Cavalier, Chief Counsel, NYSE
Euronext, to Christopher W. Chow, Special
Counsel, Commission, dated November 13, 2008
(‘‘November 13 e-mail’’).
5 See Securities Exchange Act Release No. 57029
(December 21, 2007), 72 FR 74388 (December 31,
2007) (SR–NYSEArca–2007–68) (‘‘UTP Filing’’).
PO 00000
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Fmt 4703
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]]>Agencies
[Federal Register Volume 73, Number 232 (Tuesday, December 2, 2008)]
[Notices]
[Pages 73363-73368]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-28497]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59009; File No. SR-NYSEALTR-2008-07]
Self-Regulatory Organizations; NYSE Alternext US LLC; Notice of
Filing and Order Granting Accelerated Approval of Proposed Rule Change,
as Modified by Amendment No. 1 Thereto, To Use Its Broker Dealer
Affiliate, Archipelago Securities, LLC, as Its Routing Broker
November 24, 2008.
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 November 19, 2008, NYSE Alternext US LLC (``NYSE Alternext'' or
``Exchange'') 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. On November
20, 2008, the Exchange submitted Amendment No. 1 to the proposed rule
change. The Commission is publishing this notice to solicit comments on
the proposed rule change, as amended, from interested persons, and is
granting accelerated approval to
[[Page 73364]]
the proposed rule change, as modified by Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to use its broker dealer affiliate,\3\
Archipelago Securities LLC (``ArcaSec''), as its Routing Broker to
route orders \4\ to away market centers when that market center is
displaying the national best bid and offer in accordance with Exchange
Rules and SEC Regulation National Market System \5\ (``Reg. NMS''). The
Exchange further proposes to have its Routing Broker facilitate the
acceptance of executions that result in an odd-lot or sub-penny
executions. A copy of this filing is available on the Exchange's Web
site at https://www.nyse.com, at the Exchange's principal office and at
the Commission's Public Reference Room.
---------------------------------------------------------------------------
\3\ On September 29, 2008, the Commission approved the
Exchange's business combination with NYSE Euronext, Inc.
(``Merger''). See, Securities Exchange Act Release No. 34-58673
(September 29, 2008), 73 FR 57707 (October 3, 2008) (order approving
SR-NYSE-2008-60 and SR-Amex-2008-62). Pursuant to the Merger, NYSE
Euronext became the overall parent company of the Exchange. NYSE
Euronext now operates three self-regulatory entities: The Exchange,
the NYSE, and NYSE Arca, Inc. ArcaSec, the approved outbound order
routing facility of both the NYSE and NYSE Arca, Inc., is also a
wholly owned subsidiary of NYSE Euronext, and is therefore an
affiliate of the Exchange.
\4\ ArcaSec currently acts as the outbound order routing
facility of the NYSE and NYSE Arca. See, Securities Exchange Act
Release No. 52497 (September 22, 2005), 70 FR 56949 (September 29,
2005) (SR-PCX-2005-90); see also, Securities Exchange Act Release
No. 44983 (October 25, 2001), 66 FR 55225 (November 1, 2001) (SR-
PCX-00-25); see also, Securities Exchange Act Release No. 58681
(September 29, 2008), 73 FR 58285 (October 6, 2008) (order approving
NYSEArca-2008-90). ArcaSec also currently acts as the outbound order
routing facility of the NYSE. See, Securities Exchange Act Release
No. 34-55590 (April 5, 2007), 72 FR 18707 (April 13, 2007) (notice
of immediate effectiveness of SR-NYSE-2007-29); see also, Securities
and Exchange Act Release No. 34-58680 (September 29, 2008), 73 FR
58283 (October 6, 2008) (order approving SR-NYSE-2008-76).
Currently, FINRA is the examining authority for the Routing Broker
designated by the Commission pursuant to Rule 17d-1 of the Act. As
such, FINRA is responsible for the oversight and enforcement of the
Routing Broker for compliance with the applicable financial
responsibility rules.
On January 25, 2007, NYSE Arca, Inc. filed with the Commission
to allow ArcaSec to act as a marketing agent on behalf of NYSE Arca
Tech 100 Index and NYSE Arca Tech 100 ETF. This proposed business
activity has no connection to ArcaSec's facility functions as
described above. See Securities and Exchange Act Release No. 55442
(March 12, 2007), 72 FR 12654 (March 16, 2007) (order approving SR-
NYSEArca-2007-09).
\5\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 17 CFR Parts 200, 201, 230, 240, 242, 249 and 270; see also,
70 FR 374496 (June 29, 2005). Pursuant to Reg. NMS the Exchange,
among other things, must: (i) ``Establish, maintain, and enforce
written policies and procedures reasonably designed to prevent the
execution of trades at prices inferior to protected quotations
displayed by other trading centers'' and (ii) provide access to the
trading center displaying the protected quotations.
---------------------------------------------------------------------------
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 III 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 is proposing to use ArcaSec as its Routing Broker to
route orders to away market centers when that market center is
displaying the national best bid and offer in accordance with Exchange
Rules and Reg. NMS.\6\ Through this filing the Exchange further
proposes to otherwise have its Routing Broker facilitate the acceptance
of executions that result in an odd-lot \7\ or a sub-penny \8\
execution after the Routing Broker routed an Exchange order to an away
market center. Presently, the Exchange employs an un-affiliated broker-
dealer for purposes of routing orders to away market centers in
furtherance of Reg. NMS compliance. The Exchange intends to use ArcaSec
as its Routing Broker, pending approval, as of the date that the
Exchange implements its new electronic trading system in conjunction
with the opening of its new trading floor at 11 Wall Street in New
York, New York.
---------------------------------------------------------------------------
\6\ The Exchange is not proposing at this time to use ArcaSec as
its routing broker to route option orders to away market centers.
\7\ Odd-lot orders are orders for a size less than the standard
unit (round-lot) of trading, which is 100 shares for most stocks,
although some stocks trade in 10 share units.
\8\ It should be noted that the Exchange's current electronic
trading system can handle odd-lot and sub-penny executions. Upon
transfer to its new electronic system, which is based on the NYSE's
existing system, the Exchange will require that its Routing Broker
facilitate these transactions until such time as the platform is
modified. Recently, the NYSE modified its electronic trading system
in order to accommodate away market center executions in sub-
pennies; implementation of this modification should substantially
reduce the need for ArcaSec to facilitate sub-penny executions on
behalf of NYSE Alternext. See Securities Exchange Act Release No.
34-58936 (November 13, 2008) (notice of filing and immediate
effectiveness of SR-NYSE-2008-117).
---------------------------------------------------------------------------
Rule 2B--NYSE Alternext Equities provides, in pertinent part, that:
without prior approval by the Securities and Exchange Commission,
the Exchange or any entity with which it is affiliated shall not,
directly or indirectly, acquire or maintain an ownership interest in
a member organization.
In its Order approving the acquisition of the American Stock
Exchange LLC by NYSE Euronext, the SEC, among other things, approved
the affiliation between NYSE Alternext and ArcaSec, subject to certain
conditions.\9\ By that Order, the SEC also approved revisions to
Exchange Rule 1(b), in order to address inbound routing by affiliated
members.\10\ The Exchange also recently received approval to implement
Rules 13 and 17--NYSE Alternext Equities, which define the term Routing
Broker and establish the conditions under which the Exchange's Routing
Broker shall operate.\11\ In that filing, the Exchange sought to revise
its equities rules to substantially mirror those of the New York Stock
Exchange LLC (``NYSE''), including NYSE Rule 2B. Unfortunately, certain
text of Rule 2B--NYSE Alternext Equities was inadvertently omitted as
part of the intended revision. The Exchange seeks to rectify this
omission and revise Rule 2B--NYSE Alternext Equities (in keeping with
its prior intent) so that it mirrors NYSE Rule 2B.\12\ Accordingly, as
set forth in Exhibit 5 attached hereto, Rule 2B--NYSE Alternext
Equities shall provide as follows:
---------------------------------------------------------------------------
\9\ See, Securities Exchange Act Release No. 34-58673 (September
29, 2008), 73 FR 57707 (October 3, 2008) (order approving SR-Amex-
2008-62).
\10\ Id. Rule 1(b) remains effective for trading that continues
at 86 Trinity on legacy systems until the options relocation
scheduled for February 2009. Rule 2B--NYSE Alternext Equities will
apply to all trading conducted on its new equities platform to be
implemented in conjunction with its move to 11 Wall Street on
December 1, 2008.
\11\ See, Securities Exchange Act Release No. 34-58705 (October
1, 2008), 73 FR 58995 (October 8, 2008) (order approving SR-AMEX-
2008-63).
\12\ Please note, NYSE Rule 2B matches previously approved
Alternext Rule 1 in its entirety. The Exchange is not seeking to
make any substantive changes, but simply seeks to rectify an
inadvertent omission of rule text.
The holding company owning both the Exchange and Archipelago
Securities L.L.C. shall establish and maintain procedures and
internal controls reasonably designed to ensure that Archipelago
Securities, L.L.C. does not develop or implement changes to its
system on the basis of non-public information regarding planned
changes to Exchange systems, obtained as a result of its affiliation
with the Exchange, until such information is available generally to
similarly situated members of the Exchange in connection with the
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provision of inbound order routing to the Exchange.
[[Page 73365]]
Pursuant to Rule 2B--NYSE Alternext Equities, as revised herein,
the Exchange now seeks authorization to use ArcaSec, an affiliated
broker-dealer, to operate as its Routing Broker.
Pursuant to the proposal, the Exchange systems will provide the
Routing Broker with routing instructions, to route orders to other
market centers and report such executions back to the Exchange. The
Routing Broker cannot change the terms of an order or the routing
instructions, nor does the Routing Broker have any discretion about
where to route an order.
The Routing Broker will operate as a ``facility'' \13\ of the
Exchange in that it will serve as a ``system of communication to or
from'' \14\ the Exchange. When an order must be routed to an away
market center for execution, the Exchange systems will affix all order
handling information to the order. Exchange systems will automatically
transmit the order and the relevant order handling information to the
Routing Broker. In turn, the Routing Broker will facilitate the
delivery of the received order to the destination away market. The
Routing Broker will obtain receipts of executions and deliver those
receipts of executions back to Exchange systems.\15\ The Routing
Broker, as merely a conduit between the Exchange and away market
centers, cannot change the terms of an order, systemically reject an
order, or otherwise perform data validation prior to delivery of the
order to an away market center or after return receipt and delivery of
the execution to the Exchange.
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\13\ The term ``facility'' as defined in Section 3(a)(2) of the
Securities Exchange Act of 1934, as amended provides,
* * * when used with respect to an exchange includes its
premises, tangible or intangible property whether on the premises or
not, any right to the use of such premises or property or any
service thereof for the purpose of effecting or reporting a
transaction on an exchange (including, among other things, any
system of communication to or from the exchange, by ticker or
otherwise, maintained by or with the consent of the exchange), and
any right of the exchange to the use of any property or service.
See, 15 U.S.C. 78c.
\14\ Id.
\15\ Comparable to the operation of ArcaSec in its capacity as a
facility of the NYSE and NYSE Arca, the use of ArcaSec by the
Exchange will only be available to members of NYSE Alternext.
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In particular, and without limitation, under the Act, the exchange
will be responsible for filing with the Commission rule changes and
fees relating to the functions performed by the Routing Broker for the
Exchange and will be subject to exchange non-discrimination
requirements.
Furthermore, the books, records, premises, officers, agents,
directors, and employees of the Routing Broker, as a facility of the
Exchange, shall be deemed to be the books, records, premises, officers,
agents, directors, and employees of the Exchange for purposes of, and
subject to oversight pursuant to, the Act. The books and records of the
Routing Broker as a facility of the Exchange shall be subject at all
times to inspection and copying by the Exchange and the Commission.
In addition to routing orders to away market centers, the Routing
Broker will facilitate the acceptance of executions that results in an
odd-lot or a sub-penny execution as Exchange systems will be unable to
accept such executions after the Routing Broker routes an Exchange
order to an away market center.\16\ Upon transfer to its new electronic
trading system, odd-lot orders on the Exchange will be executed in a
system that is separate from the Exchange system responsible for the
execution of round-lot orders (``the odd-lot trading platform''). The
Exchange's new odd-lot trading platform will execute all odd-lots
orders against the specialist as the contra party separate from the
trading system that is responsible for the execution of round lot
orders. Since odd-lot orders will be handled in a separate trading
system, the Exchange systems that are responsible for the execution of
round lot orders will be unable to accept receipts of execution in odd-
lots at the present time.
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\16\ See supra note 8.
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Similarly, the Exchange has chosen not to quote and trade in sub-
penny increments when permitted under Reg. NMS.
In order to process receipts of odd lot and sub-penny executions
from an away market, the Exchange proposes to have the Routing Broker
facilitate the handling of such odd-lot and sub-penny executions.
Specifically, if the Routing Broker is in receipt of an odd-lot
execution in response to the Exchange's routing of a round lot order,
it will assume the odd-lot position. The Routing Broker will then sell/
buy the requested number of round lot shares to the Exchange member.
The Routing Broker will perform this adjustment to each odd-lot
execution in order to transmit a round lot execution to the Exchange.
The Routing Broker will afford the Exchange order, i.e. for the
Exchange member, the most favorable execution price based on the odd-
lot execution(s) received by Routing Broker from the away market.
With regard to a sub-penny execution, the Routing Broker will
perform an adjustment to each sub-penny execution. Specifically, the
Routing Broker will round down for each buy order and up for each sell
order and transmit a round penny execution to the Exchange order.
Again, the Routing Broker will afford the Exchange order the most
favorable execution price based on the sub-penny execution received by
Routing Broker from the away market.
The Router Broker will liquidate positions assumed as a result of
the services provided to the Exchange. This service provided by the
Routing Broker with regard to odd-lot and sub-penny executions is not
intended to operate as a means to generate revenue. Rather, the Routing
Broker is providing an additional service to the Exchange in order to
facilitate the receipt of odd-lot and sub-penny executions from away
market centers. To that end, it is the intent of the Routing Broker to
be flat in all positions at the end of each trading day.\17\ The
Routing Broker will incorporate an automated system to assist, as soon
as practicable, in the liquidation (acquisition) for any residual long
(short) positions. To mitigate financial risk \18\ to the Routing
Broker, registered trading personnel of the Routing Broker may be
required to manually assist, as soon as practicable, in the liquidation
(acquisition) of such positions, particularly high-priced securities
that may trade with a wide spread.
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\17\ Absent any unusual market conditions or the timing of such
trades (for example the execution of the order at 15:59:59) it is
intended that the Routing Broker will be flat in all positions at
the end of each trading day.
\18\ Any and all loses incurred during the facilitation of odd-
lot and sub-penny executions will be assumed by the Routing Broker
as part of the routing service provided.
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Below are examples of how the Router Broker is intended to operate.
ODD-LOT Executions
Example 1: Exchange member Firm X enters an order on the
Exchange to buy 100 shares of ABC at $20.00. The Exchange systems
transmit the order with order handling instructions to the Routing
Broker. The Routing Broker then transmits the order with the order
handling instructions received from the Exchange systems to market
center A. The Routing Broker receives reports of two odd-lot
executions from market center A. The first report of execution is
for 30 shares executed at a price of $20.00. The second report of
execution completes the original order with an execution of the
remaining 70 shares at a price of $20.00. The Routing Broker will
sell 100 shares to Exchange member Firm X at $20.00 and use the odd-
lots received from market center A to offset the position. The
Routing Broker's position is flat.
Example 2: Exchange member Firm X enters an order on the
Exchange to buy 100
[[Page 73366]]
shares of ABC at $20.00. The Exchange systems transmit the order
with order handling instructions to the Routing Broker. The Routing
Broker then transmits the order with the order handling instructions
received from the Exchange systems to market center A. The Routing
Broker receives two odd-lot fills from market center A. The first
report is for 30 shares executed at a price of $19.99. The second
report of execution completes the original with an execution of the
remaining 70 shares at a price of $20.00. The Routing Broker sells
100 shares to Firm X at $19.99 and uses the odd-lots to offset the
position. The Routing Broker's position is flat, with a loss of
$0.70.
Example 3: Exchange member Firm X enters an order on the
Exchange to buy 100 shares of ABC at $20.00. The Exchange systems
transmit the order with order handling instructions to the Routing
Broker. The Routing Broker then transmits the order with the order
handling instructions received from the Exchange systems to market
center A. The Routing Broker receives an odd-lot fill of only 30 at
$20.00 and a report of cancellation for the remaining 70 shares of
the original order. The Routing Broker will sell 100 shares to Firm
X at $20.00. In turn, the Routing Broker will then go into the
market to buy 70 shares of ABC. The Routing Broker receives a fill
of 70 at $20.05. The Routing Broker will then use both odd-lots
positions to offset the position taken as a result of handling the
order of Firm X. The Routing Broker's position is flat, with a loss
of $3.50.
Example 4: Exchange member Firm X enters an order on the
Exchange to buy 100 shares of ABC at $20.00. The Exchange systems
transmit the order with order handling instructions to the Routing
Broker. The Routing Broker then transmits the order with the order
handling instructions received from the Exchange systems to market
center A. The Routing Broker receives an odd-lot fill of only 30 at
$20.00 and a report of cancellation for the remaining 70 shares of
the original order. The Routing Broker will sell 100 shares to Firm
X at $20.00. In turn, the Routing Broker will then go into the
market to buy 70 shares of ABC. The Routing Broker receives a fill
of 70 at $19.99. The Routing Broker will then use both odd-lots
positions to offset the position taken as a result of handling the
order of Firm X. The Routing Broker's position is flat, with a
profit of $0.70.
SUB-PENNY Executions
Example 1: Exchange member Firm X enters an order on the
Exchange to buy 100 shares of ABC at $20.00. The Exchange's best
offer is $19.98. Market Center A is displaying a best offer at
$19.97. Market Center A also offers a mid-point match execution
process that may result in a trade price that includes sub-pennies.
The Exchange systems transmit the order with order handling
instructions to the Routing Broker. The Routing Broker then
transmits the order with the order handling instructions received
from Exchange systems to market center A. The Routing Broker
receives a fill of 100 shares at $19.965 due to a mid-point cross
occurring at market center A. The Routing Broker will sell 100
shares to member Firm X at $19.96 and uses the fill of 100 shares at
$19.965 to offset the position. The Routing Broker will be flat,
with a loss of $0.50.
The use of the Routing Broker to route orders to another market
center will be optional. In the event a member organization does not
want to use the Routing Broker it must enter an immediate-or-cancel
order or any such other order type available on the Exchange that is
not eligible for routing. All bids and offers entered on the Exchange
that are routed to other market centers via the Routing Broker which
result in an execution shall be binding on the member organization that
entered such bid and offer.
The Routing Broker will not engage in any business for the Exchange
other than its outbound router and facilitation functions as described
above. In the event the Exchange seeks to have the Routing Broker
engage in any other activities it understands that the ability of the
Routing Broker to engage in such new business activity would require
Commission approval.
The Exchange believes that the above described operation of the
Routing Broker will serve as the most economically efficient execution
of securities transactions. Furthermore, the Routing Broker is
necessary for the Exchange to comply with its obligations pursuant to
Reg. NMS.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the requirement under Section 6(b)(5) \19\ of the Securities
Exchange Act of 1934 (the ``Act'') \20\ that an Exchange have rules
that are designed 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. The proposed rule change also is
designed to support the principles of Section 11A(a)(1) \21\ in that it
seeks to assure economically efficient execution of securities
transactions. Specifically, the proposed rule change will allow
Exchange to establish and implement mechanisms to remain fully
compliant with Reg. NMS and other Exchange rules.
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\19\ 15 U.S.C. 78f(b)(5).
\20\ 15 U.S.C. 78a.
\21\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that this proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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. 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 (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSEALTR-2008-07 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-NYSEALTR-2008-07.
This file number should be included on the subject line if e-mail 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 (https://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 inspection
and copying in the Commission's Public Reference Room, on official
business days between the hours of 10 a.m. and 3 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-
[[Page 73367]]
NYSEALTR-2008-122 and should be submitted on or before December 23,
2008
IV. Commission's Findings and Order Granting Accelerated Approval of a
Proposed Rule Change
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.\22\ In
particular, it is consistent with Section 6(b)(5) of the Act,\23\ which
requires, among other things, that the rules of a national securities
exchange be 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 mechanism of a free and open market and a national market
system; and, in general, to protect investors and the public interest;
and are not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\22\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\23\ 15 U.S.C. 78f(b)(5).
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On September 29, 2008, the Commission approved the Exchange's
business combination with NYSE Euronext.\24\ In conjunction with the
Merger, the Exchange proposed to transfer trading from the American
Stock Exchange LLC system to a new system based on NYSE's existing
system. Accordingly, the Exchange proposed new rules that would govern
trading on the Exchange once trading was transferred to the new
electronic system.\25\ Included in those recently approved rules were
NYSE Alternext Rules 13 and 17, which define the term Routing Broker
and establish the conditions under which the Exchange's Routing Broker
shall operate.\26\ In the instant filing, the Exchange proposes to use
ArcaSec, an affiliated broker-dealer, as its Routing Broker once
trading is transferred to the new electronic system.
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\24\ See supra note 3.
\25\ See supra note 11. The Commission notes that the Exchange
intends to transfer trading to its new system on December 1, 2008.
\26\ Id.
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In the past, the Commission has expressed concern that the
affiliation of an exchange with one of its members raises potential
conflicts of interest, and the potential for unfair competitive
advantage.\27\ Although the Commission continues to be concerned about
potential unfair competition and conflicts of interest between an
exchange's self-regulatory obligations and its commercial interests
when the exchange is affiliated with one of its members, the Commission
believes that it is consistent with the Act to permit ArcaSec to
provide outbound routing services to NYSE Alternext, subject to certain
conditions.
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\27\ See, e.g., Securities Exchange Act Release Nos. 58673,
supra note 3; 54170 (July 18, 2006), 71 FR 42149 (July 25, 2006)
(SR-NASDAQ-2006-006) (order approving Nasdaq's proposal to adopt
Nasdaq Rule 2140, restricting affiliations between Nasdaq and its
members); and 53382 (February 27, 2006, 71 FR 11251 (March 6, 2006)
(SR-NYSE-2005-77) (order approving the combination of the New York
Stock Exchange, Inc. and Archipelago Holdings) at 11255.
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NYSE Alternext Equities Rule 17 imposes certain conditions on an
Exchange Routing Broker, which would apply to ArcaSec as the Exchange's
outbound order router. For example, ArcaSec must: (1) Be a member of an
self-regulatory organization unaffiliated with NYSE Alternext that is
its designated examining authority; (2) establish and maintain
procedures and internal controls reasonably designed to restrict the
flow of confidential and proprietary information between NYSE Alternext
and its facilities, including ArcaSec, and any other entity; (3) be
regulated as a facility of the Exchange; \28\ and (4) not engage in any
business other than its outbound router function unless otherwise
approved by the Commission. Also, the books, records, premises,
officers, agents, directors and employees of ArcaSec, as a facility of
NYSE Alternext, will be deemed to be those of the Exchange for purposes
of and subject to oversight pursuant to the Act.\29\ In addition, use
of ArcaSec to route order from NYSE Alternext to away market centers is
optional, and a NYSE Alternext member is free to route orders to other
market centers through alternative means.
---------------------------------------------------------------------------
\28\ The Commission notes that, as a facility of the Exchange,
ArcaSec will be subject to Exchange oversight, as well as Commission
oversight. Further, the Exchange will be responsible for filing with
the Commission proposed rule changes and fees relating to ArcaSec's
outbound router function and ArcaSec's outbound router function will
be subject to exchange non-discrimination requirements.
\29\ See NYSE Alternext Equities Rule 17(b). In addition, the
books and records of ArcaSec, as a facility of the Exchange, will be
subject at all times to inspection and copying by the Exchange and
the Commission. Id.
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In light of the protections discussed above and contained in NYSE
Alternext Equities Rule 17, the Commission believes that it is
consistent with the Act to permit NYSE Alternext to use its affiliate,
ArcaSec, as its Routing Broker, as proposed.
In addition, the Exchange proposes to have its Routing Broker
facilitate the acceptance of executions that result in an odd-lot or a
sub-penny execution of an order that the Routing Broker routed to an
away market center. The Commission notes that ArcaSec currently
provides these services to NYSE in its capacity as NYSE's outbound
order router.\30\ The Commission notes that in each instance the
Routing Broker will execute the Exchange member's order at the most
favorable execution price based on the odd-lot or sub-penny execution
received from the away market. The Commission also notes that the
Exchange has represented the Routing Broker will liquidate positions
assumed as a result of this service, with the intent to be flat at the
end of each trading day. The Commission believes that allowing ArcaSec
to facilitate the acceptance of executions on away markets that result
in an odd-lot or a sub-penny execution, as proposed, is consistent with
the Act and will enable NYSE Alternext to comply with Reg. NMS.
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\30\ See Securities Exchange Act Release No. 55590, supra note
4.
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NYSE Alternext has asked the Commission to accelerate approval of
the proposed rule change. NYSE Alternext states that accelerated
approval ``will permit the Exchange to establish and implement
mechanisms to remain fully compliant with Reg. NMS and other Exchange
rules immediately upon implementation of its new electronic trading
system and in conjunction with the opening of its new trading floor at
11 Wall Street.'' \31\ NYSE Alternext notes that it ``intends to
implement its new trading system and open its new trading floor on
December 1, 2008.'' \32\ The Commission finds good cause for approving
the proposed rule change before the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register. The
Commission notes that NYSE Alternext's proposal to use ArcaSec as its
outbound order routing facility is consistent with prior Commission
action.\33\ Accordingly, the Commission finds good cause, consistent
with Section 19(b)(2) of the Act,\34\ to approve the proposed rule
change on an accelerated basis.
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\31\ See SR-NYSEALTR-2008-07, Item 7.
\32\ Id..
\33\ See, e.g., Securities Exchange Act Release Nos. 52497 and
55590, supra note 4.
\34\ 15 U.S.C. 78s(b)(2).
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[[Page 73368]]
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-NYSEALTR-2008-07), as modified by
Amendment No. 1, is hereby approved on an accelerated basis.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E8-28497 Filed 12-1-08; 8:45 am]
BILLING CODE 8011-01-P
