Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by New York Stock Exchange LLC Amending Certain NYSE Rules To Reflect That Designated Market Makers on the Exchange No Longer Act as Agents for Orders Entered on the Exchange, 8600-8603 [E9-3980]

Download as PDF 8600 Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices amend Chapter VII, Section 12, which currently provides that an Options Participant may not execute as principal against orders on the limit order book they represent as agent unless: (a) Agency orders are first exposed on NOM for at least three seconds, or (b) the Options Participant has been bidding or offering on NOM for at least three seconds prior to receiving an agency order that is executable against such bid or offer. In addition, Options Participants must expose orders they represent as agent for at least three seconds before such orders may be automatically executed, in whole or in part, against orders solicited from members and non-member brokerdealers to transact with such orders. Under the proposal, these exposure periods would be reduced to one second. pwalker on PROD1PC71 with NOTICES III. Discussion and Commission Findings After carefully reviewing the proposed rule change, the Commission finds that the proposal is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.) 5 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,6 which, among other things, requires that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating 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 also finds that the proposed rule change is consistent with Section 6(b)(8) of the Act,7 which requires that the rules of an exchange not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Commission believes that, given the electronic environment of NASDAQ, reducing each of these exposure periods from three seconds to one second could facilitate the prompt execution of orders, while continuing to provide market participants with an opportunity to compete for exposed bids and offers. To substantiate that NASDAQ members could receive, process, and 5 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). 6 15 U.S.C. 78f(b)(5). 7 15 U.S.C. 78f(b)(8). VerDate Nov<24>2008 18:09 Feb 24, 2009 Jkt 217001 communicate a response back to NASDAQ within one second, NASDAQ stated that it distributed a survey to all NOM Options Participants. NASDAQ stated that the survey results indicated that it typically takes not more than 250 milliseconds for members to receive, process, and respond to broadcast messages that would be affected by the proposal. NASDAQ also stated that all eight members that responded to the survey indicated that reducing the exposure period to one second would not impair their ability to participate in orders affected by the proposal. Based on NASDAQ’s statements regarding the survey results, the Commission believes that market participants should continue to have opportunities to compete for exposed bids and offers within a one second exposure period. Accordingly, the Commission believes that it is consistent with the Act for NASDAQ to reduce the order handling and exposure times discussed herein from three seconds to one second. The Commission finds good cause to approve the proposed rule change prior to the thirtieth day after publication for comment in the Federal Register. The Commission notes that the proposed rule change was noticed for a fifteen-day comment period, and no comments were received. The Commission believes that NASDAQ has provided reasonable support for its belief that its market participants would continue to have an opportunity to compete for exposed bids and offers if the exposure periods were reduced to one second as proposed. Finally, the Commission also notes that the proposed rule change is similar to recently approved proposals submitted by the Chicago Board Options Exchange, Incorporated, the International Securities Exchange, LLC, and NASDAQ OMX PHLX, Inc.8 Therefore, the Commission finds good cause, consistent with Section 19(b)(2) of the Act,9 to approve the proposed rule change on an accelerated basis. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,10 that the proposed rule change (SR–NASDAQ– 2009–005), as modified by Amendment No. 1, be, and hereby is, approved on an accelerated basis. 8 See Securities Exchange Act Release Nos. 58088 (July 2, 2008), 73 FR 39747 (July 10, 2008) (SR– CBOE–2008–16); 58224 (July 25, 2008), 73 FR 44303 (July 30, 2008) (SR–ISE–2007–94); and 59081 (December 11, 2008), 73 FR 76432 (December 16, 2008). 9 15 U.S.C. 78s(b)(2). 10 15 U.S.C. 78s(b)(2). 11 17 CFR 200.30–3(a)(12). PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–4038 Filed 2–24–09; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59415; File No. SR–NYSE– 2009–13] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by New York Stock Exchange LLC Amending Certain NYSE Rules To Reflect That Designated Market Makers on the Exchange No Longer Act as Agents for Orders Entered on the Exchange February 18, 2009. 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 February 4, 2009, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend certain NYSE rules to reflect that Designated Market Makers (‘‘DMMs’’) on the Exchange will no longer act as agents for orders entered on the Exchange. The text of the proposed rule change is available at https://www.nyse.com, the Exchange, and the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at 1 15 U.S.C.78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 E:\FR\FM\25FEN1.SGM 25FEN1 Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Through this filing, the Exchange proposes to amend certain NYSE rules to reflect that the Designated Market Makers (‘‘DMMs’’) no longer have agency responsibilities for orders entered on the NYSE Display Book® (‘‘Display Book’’).4 The Exchange notes that parallel changes are proposed to be made to the rules of the NYSE Alternext Exchange (formerly the American Stock Exchange).5 pwalker on PROD1PC71 with NOTICES Background On June 12, 2008, the NYSE filed a set of proposed rule changes designed to transform its market structure and reinforce the NYSE as the premier venue for price discovery, liquidity, competitive quotes and price improvement.6 That and other filings 7 formed the core initiatives submitted by the Exchange to reinforce its dynamic and competitive marketplace. As outlined in SR–NYSE–2008–46 (the ‘‘New Market Model filing’’), the changes to the Exchange’s marketplace included the replacement of Exchange specialists with DMMs. The function of the DMM is substantially different from the manner in which specialists ` functioned vis-a-vis the relationship between Exchange order givers and representation of these orders in the marketplace. DMMs no longer receive copies of orders entered in Exchange systems prior to the orders publication to all market participants by Display 4 The Display Book® system is an order management and execution facility. The Display Book system receives and displays orders to the DMM, contains the Book, and provides a mechanism to execute and report transactions and publish results to the Consolidated Tape. The Display Book system is connected to a number of other Exchange systems for the purposes of comparison, surveillance, and reporting information to customers and other market data and national market systems. 5 See SR–NYSE Alternext–2009–09 (to be filed February 4, 2009). 6 See Securities Exchange Act Release No. 58184 (July 17, 2008), 73 FR 42853 (July 23, 2008) (SR– NYSE–2008–46). 7 See for example, Securities Exchange Act Release No. 58052 (June 27, 2008), 73 FR 38274 (July 3, 2008) (SR–NYSE–2008–45) (amending NYSE Rule 98); see also Securities Exchange Act Release No. 58363 (August 14, 2008), 73 FR 49514 (August 21, 2008) (SR–NYSE–2008–52) (amending the NYSE allocation policy). VerDate Nov<24>2008 18:09 Feb 24, 2009 Jkt 217001 Book. Similarly, DMMs do not have a negative obligation which would require the DMM to yield trading for the DMM unit’s proprietary account in order to allow public orders to be executed against each other. DMMs therefore trade on parity with all market participants. Incoming orders to buy and sell submitted to the Exchange are eligible for automatic quoting and immediate and automatic execution. Instead of the DMM, the NYSE Display Book is responsible for tracking the liquidity available at each specified price point. NYSE systems automatically review the liquidity available on the Display Book for execution and then using sophisticated execution logic access the necessary liquidity to consummate trades. Exchange systems report executions to the entering parties, update the quote and process order cancellations. Although the DMM no longer receives order by order information, he or she is still responsible for the execution of manual transactions on the Exchange including opening and re-opening transactions, closing transactions, block transactions, gap quote situations and when trading reaches LRPs that would lock or cross the market.8 DMMs are responsible for choosing the price 9 and the executions of the orders at that price during those specific situations. In the current NYSE trading environment, the DMM no longer functions as an agent for orders on the Display Book because the DMM does not control order by order information. As such the Exchange proposes through this filing to amend legacy rules that retain the concept of the Exchange market maker as agent. Proposed Rule Changes Certain Exchange rules contain language that refers to the DMM ‘‘holding,’’ ‘‘receiving,’’ and/or ‘‘accepting’’ orders. These concepts were consistent with the role performed by former specialist but are inconsistent with the role of the DMM. The Exchange therefore proposes to amend NYSE Rules 13 (‘‘Definitions of Orders’’), 91 8 See NYSE Rule 104(a)(2)–(5). an opening and reopening trade, Display Book will verify that all interest that must be executed in the opening or reopening can be executed at the price chosen by the DMM. If all the interest that must be executed in the transaction cannot be executed at that price, the Display Book will block the execution. In addition, when executing blocks (10,000 shares or more or value of $200,000 or more), trading out of a gap quote situation or an LRP that locks or crossed the market, the Display Book may adjust the execution price if there is enough interest on the Display Book to complete the transaction at a better price. 9 In PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 8601 (‘‘Taking or Supplying Securities Named in Order’’), 123A (‘‘Miscellaneous Requirements’’) and 123B (‘‘Exchange Automated Order Routing Systems’’) to remove this concept. Specifically, the Exchange proposes to delete the Supplementary Material.10 of NYSE Rule 13 in its entirety to remove language that provides a DMM must accept any order given to him, unless he obtains Floor Official approval to decline an order. The Exchange further seeks to remove the phrase ‘‘the DMM via’’ 10 from Supplementary Material.40 of NYSE Rule 91 that governs a DMM making a proprietary trade against an order, but retain the procedural provisions. In Supplementary Material to Rule 123A, the Exchange proposes to delete .10 (‘‘Limited orders-Market orders’’) since it speaks to a member giving an order to the DMM. The first paragraph of .20 (‘‘Sending orders to DMMs’’) in that rule is proposed for deletion as it governs members and member organizations transmitting orders to DMMs. The Exchange further proposes to amend .20 of NYSE Rule 123A to: (i) Delete the concept of orders being sent to the DMMs; and (ii) change the title to ‘‘Changes in Day Orders’’ which reflects the retained material. Similarly, Supplementary Material .31 (‘‘Orders sent to representatives’’), .32 (‘‘Report not received’’), .33 (‘‘Addressed order or order handed to DMM’’), .34 (‘‘Unaddressed order’’), .35 (‘‘Erroneous statement’’), .36 (‘‘Legibility of orders’’), .37 (‘‘Identity of stock’’), .38 (‘‘Reports, written and oral’’) and .39 (‘‘Duplicate reports’’) of NYSE Rule 123A are proposed for deletion as they speak to transmitting or giving orders to DMMs, DMMs receiving orders, DMMs giving reports on orders, and similar provisions. In addition, the Exchange proposes to delete NYSE Rule 123B(b)(2)(B) because it speaks of orders received by the DMM through the Designated Order Turnaround System and to erroneous reports sent by the DMM on executions. These functions are no longer handled in this manner. As previously explained, order acceptance and reports of executions are handled by Exchange systems. The Exchange also proposes to delete NYSE Rule 123B(d) because it describes orders being sent to and executed by the DMM. The Exchange also proposes to amend paragraph (2)(A) of Rule 123B(b) to have it apply to all members if the member 10 See e-mail from Deanna G. W. Logan, Managing Director, NYSE Regulation, Inc., to David Liu, Assistant Director, Division of Trading and Markets, Commission, dated February 13, 2009 (making technical edits) (‘‘February 13th e-mail’’). E:\FR\FM\25FEN1.SGM 25FEN1 8602 Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices makes an erroneous report of the price of a transaction, by substituting the word ‘‘member’’ for the word ‘‘broker’’ in the rule. This will then include situations in which a DMM makes an erroneous report as to price on a transaction. NYSE Rule 92(d)(6) (‘‘Limitations on Members’ Trading Because of Customers’ Orders’’) is further proposed for deletion as it restricts DMM proprietary trading during the hours the Exchange is closed. The restriction was predicated on the former specialist system where the specialist had knowledge of customer orders in his or her possession. The restriction is obviated by the fact that the DMM no longer ‘‘holds’’ customer orders. Nevertheless, as members, DMMs will continue to be subject to the rule’s general prohibition. Similarly, the last sentence of NYSE Rule 127(d)(3) (‘‘Block Crosses Outside the Prevailing NYSE Quotation’’) is proposed for deletion because it also is predicated on the DMM retaining stock for the DMM’s own account at a price at which the DMM ‘‘holds’’ unexecuted customer orders.11 The Exchange believes that the amendments proposed herein to remove legacy rule language that is inconsistent with the role of the DMM as approved by the Commission in the New Market Model filing are necessary to adequately reflect the functions performed by the DMM. pwalker on PROD1PC71 with NOTICES 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ‘‘Act’’),12 in general, and furthers the objectives of Section 6(b)(5) of the Act,13 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange believes the proposed rule changes are consistent with these principles in that it amends legacy rules to accurately reflect the role performed by the Exchange’s market maker thus removing impediments to and perfecting the mechanism of a free and open market. 11 See February 13th e-mail, supra, note 10. U.S.C. 78f(b). 13 15 U.S.C. 78f(b)(5). 12 15 VerDate Nov<24>2008 18:09 Feb 24, 2009 Jkt 217001 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change: (1) Does not significantly affect the protection of investors or the public interest; (2) does not impose any significant burden on competition; and (3) by its terms, does not become operative for 30 days after the date of filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 14 and Rule 19b–4(f)(6) thereunder.15 A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative for 30 days after the date of filing.16 However, Rule 19b– 4(f)(6)(iii) permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange requested that the Commission waive the 30-day operative delay and designate the proposed rule change operative upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The proposed rule change seeks to remove legacy language that is inconsistent with the role performed by DMMs as approved by the Commission in the New Market Model filing.17 Furthermore, it seeks to clarify its rule text in order to avoid any undue confusion on the part of Exchange 14 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 16 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 19b–4(f)(6)(iii) requires the self-regulatory organization to give the Commission notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. NYSE has satisfied this requirement. 17 See supra note 6. 15 17 PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 market participants as it relates to the function performed by DMMs. Therefore, the Commission designates the proposal operative upon filing.18 At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.19 IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSE–2009–13 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2009–13. 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 18 For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 19 15 U.S.C. 78s(b)(3)(C). E:\FR\FM\25FEN1.SGM 25FEN1 Federal Register / Vol. 74, No. 36 / Wednesday, February 25, 2009 / Notices of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSE– 2009–13 and should be submitted on or before March 18, 2009. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–3980 Filed 2–24–09; 8:45 am] Exchange, and the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. BILLING CODE 8011–01–P A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59416; File No. SR– NYSEALTR–2009–09] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NYSE Alternext US LLC Amending Certain NYSE Alternext Equities Rules To Reflect That Designated Market Makers (‘‘DMMs’’) on the Exchange No Longer Act as Agents for Orders Entered on the Exchange February 18, 2009. pwalker on PROD1PC71 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 February 4, 2009, NYSE Alternext US LLC (the ‘‘Exchange’’ or ‘‘NYSE Alternext’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend certain NYSE Alternext Equities rules to reflect that Designated Market Makers (‘‘DMMs’’) on the Exchange will no longer act as agents for orders entered on the Exchange. The text of the proposed rule change is available at https://www.nyse.com, the 20 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 VerDate Nov<24>2008 18:09 Feb 24, 2009 Jkt 217001 1. Purpose Through this filing, the Exchange proposes to amend certain NYSE Alternext Equities rules to conform them with amendments filed by the New York Stock Exchange, Inc. [sic] LLC 4 to reflect that the Designated Market Makers (‘‘DMMs’’) no longer have agency responsibilities for orders entered on the Display Book® (‘‘Display Book’’).5 As described more fully in a related rule filing,6 NYSE Euronext acquired The Amex Membership Corporation (‘‘AMC’’) pursuant to an Agreement and Plan of Merger, dated January 17, 2008 (the ‘‘Merger’’). In connection with the Merger, the Exchange’s predecessor, the American Stock Exchange LLC (‘‘Amex’’), a subsidiary of AMC, became a subsidiary of NYSE Euronext called NYSE Alternext US LLC, and continues to operate as a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended (the ‘‘Act’’).7 The effective date of the Merger was October 1, 2008. In connection with the Merger, on December 1, 2008, the Exchange 4 See SR–NYSE–2009–13 (to be filed on February 4, 2009). 5 The Display Book® system is an order management and execution facility. The Display Book system receives and displays orders to the DMM, contains the Book, and provides a mechanism to execute and report transactions and publish results to the Consolidated Tape. The Display Book system is connected to a number of other Exchange systems for the purposes of comparison, surveillance, and reporting information to customers and other market data and national market systems. 6 See Securities Exchange Act Release No. 58673 (September 29, 2008), 73 FR 57707 (October 3, 2008) (SR–NYSE–2008–60 and SR–Amex 2008–62) (approving the Merger). 715 U.S.C. 78f. PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 8603 relocated all equities trading conducted on the Exchange legacy trading systems and facilities located at 86 Trinity Place, New York, New York, to trading systems and facilities located at 11 Wall Street, New York, New York (the ‘‘Equities Relocation’’). The Exchange’s equity trading systems and facilities at 11 Wall Street (the ‘‘NYSE Alternext Trading Systems’’) are operated by the NYSE on behalf of the Exchange.8 As part of the Equities Relocation, NYSE Alternext adopted NYSE Rules 1– 1004, subject to such changes as necessary to apply the Rules to the Exchange, as the NYSE Alternext Equities Rules to govern trading on the NYSE Alternext Trading Systems.9 The NYSE Alternext Equities Rules, which became operative on December 1, 2008, are substantially identical to the current NYSE Rules 1–1004 and the Exchange continues to update the NYSE Alternext Equities Rules as necessary to conform with rule changes to corresponding NYSE Rules filed by the NYSE. Background On June 12, 2008, the NYSE filed a set of proposed rule changes designed to transform its market structure and reinforce the NYSE as the premier venue for price discovery, liquidity, competitive quotes and price improvement.10 That and other filings 11 formed the core initiatives submitted by the NYSE to reinforce its dynamic and competitive marketplace. As outlined in SR–NYSE–2008–46 (the ‘‘New Market Model filing’’), the changes to the NYSE’s marketplace 8 See Securities Exchange Act Release No. 58705 (October 1, 2008), 73 FR 58995 (October 8, 2008) (SR–Amex 2008–63) (approving the Equities Relocation). 9 See Securities Exchange Act Release No. 58705 (October 1, 2008), 73 FR 58995 (October 8, 2008) (SR–Amex 2008–63) (approving the Equities Relocation); Securities Exchange Act Release No. 58833 (October 22, 2008), 73 FR 64642 (October 30, 2008) (SR–NYSE–2008–106) and Securities Exchange Act Release No. 58839 (October 23, 2008), 73 FR 64645 (October 30, 2008) (SR–NYSEALTR– 2008–03) (together, approving the Bonds Relocation); Securities Exchange Act Release No. 59022 (November 26, 2008), 73 FR 73683 (December 3, 2008) (SR–NYSEALTR–2008–10) (adopting amendments to NYSE Alternext Equities Rules to track changes to corresponding NYSE Rules); Securities Exchange Act Release No. 59027 (November 28, 2008), 73 FR 73681 (December 3, 2008) (SR–NYSEALTR–2008–11) (adopting amendments to Rule 62–NYSE Alternext Equities to track changes to corresponding NYSE Rule 62). 10 See Securities Exchange Act Release No. 58184 (July 17, 2008), 73 FR 42853 (July 23, 2008) (SR– NYSE–2008–46). 11 See for example, Securities Exchange Act Release No. 58052 (June 27, 2008), 73 FR 38274 (July 3, 2008) (SR–NYSE–2008–45) (amending NYSE Rule 98); see also Securities Exchange Act Release No. 58363 (August 14, 2008), 73 FR 49514 (August 21, 2008) (SR–NYSE–2008–52) (amending the NYSE allocation policy). E:\FR\FM\25FEN1.SGM 25FEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 36 (Wednesday, February 25, 2009)]
[Notices]
[Pages 8600-8603]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-3980]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59415; File No. SR-NYSE-2009-13]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Amending Certain NYSE Rules To Reflect That Designated Market Makers on 
the Exchange No Longer Act as Agents for Orders Entered on the Exchange

February 18, 2009.
    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 February 4, 2009, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend certain NYSE rules to reflect that 
Designated Market Makers (``DMMs'') on the Exchange will no longer act 
as agents for orders entered on the Exchange.
    The text of the proposed rule change is available at https://
www.nyse.com, the Exchange, and the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at

[[Page 8601]]

the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Through this filing, the Exchange proposes to amend certain NYSE 
rules to reflect that the Designated Market Makers (``DMMs'') no longer 
have agency responsibilities for orders entered on the NYSE Display 
Book[supreg] (``Display Book'').\4\
---------------------------------------------------------------------------

    \4\ The Display Book[supreg] system is an order management and 
execution facility. The Display Book system receives and displays 
orders to the DMM, contains the Book, and provides a mechanism to 
execute and report transactions and publish results to the 
Consolidated Tape. The Display Book system is connected to a number 
of other Exchange systems for the purposes of comparison, 
surveillance, and reporting information to customers and other 
market data and national market systems.
---------------------------------------------------------------------------

    The Exchange notes that parallel changes are proposed to be made to 
the rules of the NYSE Alternext Exchange (formerly the American Stock 
Exchange).\5\
---------------------------------------------------------------------------

    \5\ See SR-NYSE Alternext-2009-09 (to be filed February 4, 
2009).
---------------------------------------------------------------------------

Background
    On June 12, 2008, the NYSE filed a set of proposed rule changes 
designed to transform its market structure and reinforce the NYSE as 
the premier venue for price discovery, liquidity, competitive quotes 
and price improvement.\6\ That and other filings \7\ formed the core 
initiatives submitted by the Exchange to reinforce its dynamic and 
competitive marketplace.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 58184 (July 17, 
2008), 73 FR 42853 (July 23, 2008) (SR-NYSE-2008-46).
    \7\ See for example, Securities Exchange Act Release No. 58052 
(June 27, 2008), 73 FR 38274 (July 3, 2008) (SR-NYSE-2008-45) 
(amending NYSE Rule 98); see also Securities Exchange Act Release 
No. 58363 (August 14, 2008), 73 FR 49514 (August 21, 2008) (SR-NYSE-
2008-52) (amending the NYSE allocation policy).
---------------------------------------------------------------------------

    As outlined in SR-NYSE-2008-46 (the ``New Market Model filing''), 
the changes to the Exchange's marketplace included the replacement of 
Exchange specialists with DMMs. The function of the DMM is 
substantially different from the manner in which specialists functioned 
vis-[agrave]-vis the relationship between Exchange order givers and 
representation of these orders in the marketplace. DMMs no longer 
receive copies of orders entered in Exchange systems prior to the 
orders publication to all market participants by Display Book. 
Similarly, DMMs do not have a negative obligation which would require 
the DMM to yield trading for the DMM unit's proprietary account in 
order to allow public orders to be executed against each other. DMMs 
therefore trade on parity with all market participants.
    Incoming orders to buy and sell submitted to the Exchange are 
eligible for automatic quoting and immediate and automatic execution. 
Instead of the DMM, the NYSE Display Book is responsible for tracking 
the liquidity available at each specified price point. NYSE systems 
automatically review the liquidity available on the Display Book for 
execution and then using sophisticated execution logic access the 
necessary liquidity to consummate trades. Exchange systems report 
executions to the entering parties, update the quote and process order 
cancellations.
    Although the DMM no longer receives order by order information, he 
or she is still responsible for the execution of manual transactions on 
the Exchange including opening and re-opening transactions, closing 
transactions, block transactions, gap quote situations and when trading 
reaches LRPs that would lock or cross the market.\8\ DMMs are 
responsible for choosing the price \9\ and the executions of the orders 
at that price during those specific situations.
---------------------------------------------------------------------------

    \8\ See NYSE Rule 104(a)(2)-(5).
    \9\ In an opening and reopening trade, Display Book will verify 
that all interest that must be executed in the opening or reopening 
can be executed at the price chosen by the DMM. If all the interest 
that must be executed in the transaction cannot be executed at that 
price, the Display Book will block the execution. In addition, when 
executing blocks (10,000 shares or more or value of $200,000 or 
more), trading out of a gap quote situation or an LRP that locks or 
crossed the market, the Display Book may adjust the execution price 
if there is enough interest on the Display Book to complete the 
transaction at a better price.
---------------------------------------------------------------------------

    In the current NYSE trading environment, the DMM no longer 
functions as an agent for orders on the Display Book because the DMM 
does not control order by order information. As such the Exchange 
proposes through this filing to amend legacy rules that retain the 
concept of the Exchange market maker as agent.
Proposed Rule Changes
    Certain Exchange rules contain language that refers to the DMM 
``holding,'' ``receiving,'' and/or ``accepting'' orders. These concepts 
were consistent with the role performed by former specialist but are 
inconsistent with the role of the DMM. The Exchange therefore proposes 
to amend NYSE Rules 13 (``Definitions of Orders''), 91 (``Taking or 
Supplying Securities Named in Order''), 123A (``Miscellaneous 
Requirements'') and 123B (``Exchange Automated Order Routing Systems'') 
to remove this concept.
    Specifically, the Exchange proposes to delete the Supplementary 
Material.10 of NYSE Rule 13 in its entirety to remove language that 
provides a DMM must accept any order given to him, unless he obtains 
Floor Official approval to decline an order. The Exchange further seeks 
to remove the phrase ``the DMM via'' \10\ from Supplementary 
Material.40 of NYSE Rule 91 that governs a DMM making a proprietary 
trade against an order, but retain the procedural provisions. In 
Supplementary Material to Rule 123A, the Exchange proposes to delete 
.10 (``Limited orders-Market orders'') since it speaks to a member 
giving an order to the DMM. The first paragraph of .20 (``Sending 
orders to DMMs'') in that rule is proposed for deletion as it governs 
members and member organizations transmitting orders to DMMs. The 
Exchange further proposes to amend .20 of NYSE Rule 123A to: (i) Delete 
the concept of orders being sent to the DMMs; and (ii) change the title 
to ``Changes in Day Orders'' which reflects the retained material. 
Similarly, Supplementary Material .31 (``Orders sent to 
representatives''), .32 (``Report not received''), .33 (``Addressed 
order or order handed to DMM''), .34 (``Unaddressed order''), .35 
(``Erroneous statement''), .36 (``Legibility of orders''), .37 
(``Identity of stock''), .38 (``Reports, written and oral'') and .39 
(``Duplicate reports'') of NYSE Rule 123A are proposed for deletion as 
they speak to transmitting or giving orders to DMMs, DMMs receiving 
orders, DMMs giving reports on orders, and similar provisions.
---------------------------------------------------------------------------

    \10\ See e-mail from Deanna G. W. Logan, Managing Director, NYSE 
Regulation, Inc., to David Liu, Assistant Director, Division of 
Trading and Markets, Commission, dated February 13, 2009 (making 
technical edits) (``February 13th e-mail'').
---------------------------------------------------------------------------

    In addition, the Exchange proposes to delete NYSE Rule 
123B(b)(2)(B) because it speaks of orders received by the DMM through 
the Designated Order Turnaround System and to erroneous reports sent by 
the DMM on executions. These functions are no longer handled in this 
manner. As previously explained, order acceptance and reports of 
executions are handled by Exchange systems. The Exchange also proposes 
to delete NYSE Rule 123B(d) because it describes orders being sent to 
and executed by the DMM.
    The Exchange also proposes to amend paragraph (2)(A) of Rule 
123B(b) to have it apply to all members if the member

[[Page 8602]]

makes an erroneous report of the price of a transaction, by 
substituting the word ``member'' for the word ``broker'' in the rule. 
This will then include situations in which a DMM makes an erroneous 
report as to price on a transaction.
    NYSE Rule 92(d)(6) (``Limitations on Members' Trading Because of 
Customers' Orders'') is further proposed for deletion as it restricts 
DMM proprietary trading during the hours the Exchange is closed. The 
restriction was predicated on the former specialist system where the 
specialist had knowledge of customer orders in his or her possession. 
The restriction is obviated by the fact that the DMM no longer 
``holds'' customer orders. Nevertheless, as members, DMMs will continue 
to be subject to the rule's general prohibition. Similarly, the last 
sentence of NYSE Rule 127(d)(3) (``Block Crosses Outside the Prevailing 
NYSE Quotation'') is proposed for deletion because it also is 
predicated on the DMM retaining stock for the DMM's own account at a 
price at which the DMM ``holds'' unexecuted customer orders.\11\
---------------------------------------------------------------------------

    \11\ See February 13th e-mail, supra, note 10.
---------------------------------------------------------------------------

    The Exchange believes that the amendments proposed herein to remove 
legacy rule language that is inconsistent with the role of the DMM as 
approved by the Commission in the New Market Model filing are necessary 
to adequately reflect the functions performed by the DMM.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\12\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\13\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest. The Exchange 
believes the proposed rule changes are consistent with these principles 
in that it amends legacy rules to accurately reflect the role performed 
by the Exchange's market maker thus removing impediments to and 
perfecting the mechanism of a free and open market.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms, does not become operative for 30 days after the 
date of filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest, 
the proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing.\16\ However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requested that the Commission waive 
the 30-day operative delay and designate the proposed rule change 
operative upon filing.
---------------------------------------------------------------------------

    \16\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the self-regulatory organization to give the 
Commission notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. NYSE has satisfied this requirement.
---------------------------------------------------------------------------

    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The proposed rule change seeks to remove legacy language that is 
inconsistent with the role performed by DMMs as approved by the 
Commission in the New Market Model filing.\17\ Furthermore, it seeks to 
clarify its rule text in order to avoid any undue confusion on the part 
of Exchange market participants as it relates to the function performed 
by DMMs. Therefore, the Commission designates the proposal operative 
upon filing.\18\
---------------------------------------------------------------------------

    \17\ See supra note 6.
    \18\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.\19\
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2009-13 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2009-13. 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

[[Page 8603]]

of such filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSE-2009-13 and should be submitted on or before March 
18, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Florence E. Harmon,
Deputy Secretary.
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

 [FR Doc. E9-3980 Filed 2-24-09; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.