Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by New York Stock Exchange LLC Amending NYSE Interim Rule 128 Governing Clearly Erroneous Executions for NYSE Equities, 51926-51931 [E9-24245]
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Federal Register / Vol. 74, No. 194 / Thursday, October 8, 2009 / Notices
coordination with persons engaged in
facilitating transactions in securities,
and to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system. The proposed rule change
provides transparency and finality for
participants and creates consistent
results across U.S. equities exchanges
with respect to clearly erroneous
executions. This proposed change
further promotes the maintenance of a
fair and orderly market, the protection
of investors and the protection of the
public interest.
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 does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 8 and Rule 19b–
4(f)(6) thereunder.9
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 10 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6) 11
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange requests
that the Commission waive the 30-day
operative delay so that it may
implement the new rule on October 5,
2009, the same date as the other equities
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8 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
10 17 CFR 240.19b–4(f)(6).
11 17 CFR 240.19b–4(f)(6).
9 17
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exchanges. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest
because it will allow the Exchange to
begin applying the new rule on the same
date as the other equities exchanges.12
Application of the new rule on this date
should help foster transparency and
consistency among those exchanges that
adopt clearly erroneous execution rules
substantially similar to those previously
approved by the Commission.13 For
these reasons, the Commission
designates that the proposed rule
change become operative on October 5,
2009.
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.
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–NYSEAmex–2009–69 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–NYSEAmex–2009–69. 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
12 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposal’s impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
13 See Securities Exchange Act Release No. 60706
(September 22, 2009), 74 FR 49416 (September 28,
2009) (NYSEArca–2009–36).
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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, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of such filing also will be
available for inspection and copying at
the principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make publicly available. All
submissions should refer to File
Number SR–NYSEAmex–2009–69 and
should be submitted on or before
October 29, 2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–24246 Filed 10–7–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60781; File No. SR–NYSE–
2009–103]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change by New York
Stock Exchange LLC Amending NYSE
Interim Rule 128 Governing Clearly
Erroneous Executions for NYSE
Equities
October 2, 2009.
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 October
2, 2009, the New York Stock Exchange
LLC (‘‘Exchange’’ or ‘‘NYSE’’) 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. NYSE
has designated the proposed rule change
as constituting a rule change under Rule
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 74, No. 194 / Thursday, October 8, 2009 / Notices
19b–4(f)(6) under the Act,3 which
renders the proposal effective upon
filing with the Commission. 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
NYSE interim Rule 128 (Clearly
Erroneous Executions for NYSE
Equities) governing clearly erroneous
executions for NYSE equities. The text
of the proposed rule change is available
at the Exchange, the Commission’s
Public Reference Room, and https://
www.nyse.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to amend
interim Rule 128 in order to improve the
Exchange’s policies and procedures
regarding clearly erroneous executions
that occur on the NYSE and on other
national market centers. The proposed
changes are part of a market-wide effort
designed to provide transparency and
finality with respect to clearly erroneous
executions. This effort seeks to achieve
consistent results for participants across
U.S. equities exchanges while
maintaining a fair and orderly market,
protecting investors and protecting the
public interest. The proposed changes
are more fully discussed below.
Definition
The Exchange will maintain the
meaning of the definition of a clearly
erroneous execution, but proposes to
add clarifying language with respect to
cancelled trades. The proposed change
identifies that when a clearly erroneous
execution occurs and both parties agree
3 17
CFR 240.19b–4(f)(6).
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to cancel the execution and when a
trade is determined by the Exchange to
be clearly erroneous such executions
will be removed ‘‘from the Consolidated
Tape.’’ 4 A trade will be removed from
the Consolidated Tape only when the
determination is deemed final and any
applicable appeals have been exhausted.
Member or Member Organization
Initiated Review Requests
The Exchange proposes to amend
interim Rule 128 to update the
procedures for requesting a review of a
clearly erroneous execution. First, and
throughout Rule 128, the term ‘‘Officer’’
will be defined as an Officer of the
Exchange or such other senior level
employee designee. Next, the proposed
rule will require that requests for review
be made by electronic mail (‘‘e-mail’’) or
other electronic means specified from
time to time by the Exchange, except for
market participants who trade on the
Floor of the Exchange, who will
continue to be permitted to make such
requests for review in person on the
Floor of the Exchange. Requiring
requests for review to be made
electronically, except those requests
made in person on the Floor of the
Exchange, creates a standard format that
can easily be logged and tracked. The
Exchange will continue to publish the email address and other electronic means
to be used for all clearly erroneous
filings in a circular distributed to
members and member organizations.
The Exchange further proposes that
requests for review must be received by
the Exchange within thirty (30) minutes
of the execution time for orders initially
routed to and executed on the Exchange.
The Exchange proposes that members
and member organizations submit
certain essential identifying information
with the request including the time of
the execution(s), security symbol(s),
number of shares, price(s), side (bought
or sold), and factual basis for believing
that the trade is clearly erroneous. The
current rule requires requests for review
to be received within fifteen (15)
minutes of the execution and does not
specify what information is required.
The Exchange believes that thirty (30)
minutes is an appropriate time frame
that offers the requesting party sufficient
time to gather and submit all required
information.
The proposed rule also requires the
Exchange to notify the counterparty to
a trade upon receipt of a timely filed
request for review that satisfies the
4 For purposes of this Rule, ‘‘removed from the
Consolidate Tape’’ means that a subsequent
message will be sent to the Consolidated Tape
indicating that a previously executed trade has been
cancelled.
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51927
Numerical Guidelines set forth within
the rule. This proposed language
eliminates the requirement that
counterparties be notified of every
request for a ruling and instead requires
notice only when a request is filed in a
timely manner and satisfies the
Numerical Guidelines. This change
alleviates the burden on the Exchange of
notifying the counterparty when a
request for review does not merit a
ruling.
The Exchange proposes to amend
interim Rule 128 to allow an Officer to
request additional information from
each party to an execution under
review. Parties to an execution under
review will have thirty (30) minutes
from the time of the request to provide
additional supporting information.
Routed Executions
The Exchange proposes to give other
market centers an additional thirty (30)
minutes from the receipt of their
participant’s timely filing to request a
ruling, but no longer than sixty (60)
minutes from the time of the execution
under review. This provision accounts
for those executions initially directed to
an away market center and subsequently
routed by that away market center to the
Exchange.
For example, assume an order is
initially routed by a participant to
Market Center A and subsequently
routed to the NYSE where the order is
executed at a price outside of the
Numerical Guidelines. This provision
generally requires Market Center A to
file with the Exchange within thirty (30)
minutes from the time it receives its
participant’s timely filed request for
review. This provision caps the filing
deadline for an away market center at
sixty (60) minutes from the time of the
execution under review.
Threshold Factors
Currently, the Exchange’s Clearly
Erroneous Execution rule does not
identify specific numeric guidelines for
determining what constitutes a clearly
erroneous execution. The current rule
simply provides that ‘‘an Officer of the
Exchange * * * shall review the
transaction * * * and determine
whether it is clearly erroneous, with a
view toward maintaining a fair and
orderly market and the protection of
investors and the public interest.’’ 5 In
practice, the Exchange currently
incorporates the internal guidelines in
the Exchange’s Clearly Erroneous
Execution policy. The Exchange
proposes adding certain numerical
thresholds to the Rule that explicitly
state what constitutes, among other
5 NYSE
E:\FR\FM\08OCN1.SGM
Rule 128(b).
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factors, a possible clearly erroneous
execution.
Numerical Guidelines
The proposed Numerical Guidelines
state that an execution executed during
the regular trading hours and after hours
of the Exchange may be found to be
clearly erroneous only if the price of the
execution to buy is greater, or less in the
case of a sale, than the Reference Price
by an amount that equals or exceeds the
numerical guidelines for a particular
execution category. The execution time
of the transaction under review
determines whether the Numerical
Guideline applied is for the regular
trading hours or the after hours of the
Exchange. The Reference Price shall be
equal to the Consolidated Last Sale
immediately prior to the execution
under review, unless unusual
circumstances are present. The
proposed guidelines for sales greater
than $0.00 up to and including $25.00
are 10% for the regular trading hours
and 20% for the after hours of the
Exchange. The proposed guidelines for
sales greater than $25.00 up to and
including $50.00 are 5% for the regular
trading hours and 10% for the after
hours of the Exchange. The proposed
guidelines for sales greater than $50.00
are 3% for the regular trading hours and
6% for the after hours of the Exchange.
Regular trading hours of the exchange
numerical guidelines
(subject execution’s % difference from
the consolidated last sale):
Reference price: Consolidated Last Sale
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Greater than $0.00 up to and including $25.00 ......................
Greater than $25.00 up to and including $50.00 ....................
Greater than $50.00 .................................................................
Multi-Stock Event—Filings involving five or more securities
by the same member or member organization will be aggregated into a single filing.
Leveraged ETF/ETN securities ................................................
Establishing Numerical Guidelines
within the Rule brings regulatory
transparency and consistency in the
application of the rules of the Exchange.
These Numerical Guidelines represent
the general consensus approach and
were developed based on the collective
experiences of a market-wide group.
The Exchange believes that the
thresholds established are fair and
appropriate and apply evenly to all
participants.
Unusual Circumstances
The Exchange further proposes that in
Unusual Circumstances the Exchange
may, in its discretion and with a view
toward maintaining a fair and orderly
market and the protection of investors
and the public interest, use a Reference
Price other than the consolidated last
sale. Unusual Circumstances may
include periods of extreme market
volatility, sustained illiquidity, or
widespread system issues. Other
Reference Prices that the Exchange may
use would include the consolidated
inside price, the consolidated opening
price, the consolidated prior close, or
the consolidated last sale prior to a
series of executions.
The following example explains the
use of a Reference Price equal to the
consolidated last sale prior to a series of
executions.
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After hours of the exchange numerical
guidelines
(subject execution’s % difference from
the consolidated last sale):
10% .......................................................
5% .........................................................
3% .........................................................
10% .......................................................
20%.
10%.
6%.
10%.
Regular Trading Hours of the Exchange Numerical Guidelines multiplied by the leverage multiplier (i.e.
2×).
After Hours of the Exchange Numerical
Guidelines multiplied by the leverage
multiplier (i.e. 2×).
ABC has a consolidated last sale of
$10.00. During the regular trading hours
of the Exchange Customer A enters a
market order to buy 10,000 shares,
although it had intended a market order
for 1,000 shares. The size of the order
is such that the order sweeps the NYSE
Display Book, which reflects 1,000
shares of liquidity offered at each of
following prices. Executions occur,
moving through the depth of Book, as
follows:
Trade #1—1000 shares @ $10.00 (9000
remaining)
Trade #2—1000 shares @ $10.20 (8000
remaining)
Trade #3—1000 shares @ $10.40 (7000
remaining)
Trade #4—1000 shares @ $10.60 (6000
remaining)
Trade #5—1000 shares @ $10.80 (5000
remaining)
Trade #6—1000 shares @ $11.00 (4000
remaining)
Trade #7—1000 shares @ $11.20 (3000
remaining)
Trade #8—1000 shares @ $11.40 (2000
remaining)
Trade #9—1000 shares @ $11.60 (1000
remaining)
Trade #10—1000 shares @ $11.80 (complete)
Thus, to be eligible for review, an
execution must be at a price that is at
least 10% higher than the consolidated
last sale prior to the series of executions.
Customer A could request a ruling for
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A filing involving five or more securities
by the same member or member
organization will be aggregated into a
single filing called a ‘‘Multi-Stock
Event.’’ In the case of a Multi-Stock
Event, the proposed guidelines are 10%
per security for the regular trading hours
and after hours of the Exchange. In the
case of Leveraged ETF/ETN securities,
the above guidelines are to be
multiplied by the leverage multiplier of
the security. Executions that do not
meet or exceed the Numerical
Guidelines will not be eligible for
review under this section. The following
chart summarizes the proposed
Numerical Guidelines.
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trades #6 through #10, priced at $11.00
and above, but trades #1 through #5
would not be eligible for review.
Under the proposed rule the Exchange
may also use a higher Numerical
Guideline if, after market participants
have been alerted to erroneous activity,
the price of the security returns toward
its prior trading range but continues to
trade at a price beyond the Numerical
Guidelines.
Joint Market Rulings
In the interest of achieving
consistency across markets, the
Exchange proposes that, in events that
involve other markets, the Exchange
would have the ability to use a different
Reference Price and/or Numerical
Guideline. In these instances the
Reference Price would be determined
based on a consensus among the
Exchanges where the executions
occurred. Furthermore, when a ruling is
made across markets, the Exchange may
determine that the ruling is not eligible
for appeal because immediate finality is
necessary to maintain a fair and orderly
market and to protect investors and the
public interest. While the Exchange will
coordinate its review of a clearly
erroneous execution with other affected
market centers with the goal of
rendering consistent results across the
market, the Exchange is not bound by
joint market rulings when such rulings
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would violate other NYSE rules or are
inconsistent with internal policies of the
Exchange.
Additional Factors
The proposed amendments to interim
Rule 128 also enumerate some
additional factors that an Officer may
consider when determining whether an
execution is clearly erroneous. These
factors include, but are not limited to,
system malfunctions or disruptions,
volume and volatility for the security,
derivative securities products that
correspond to greater than 100% in the
direction of a tracking index, news
released for the security, whether
trading in the security was recently
halted/resumed, whether the security is
an IPO, whether the security was subject
to a stock-split, reorganization, or other
corporate action, overall market
conditions, Opening and Late Session
executions, validity of the consolidated
tape’s trades and quotes, consideration
of primary market indications, Liquidity
Replenishment Points (‘‘LRPs’’), Depth
Guidelines and executions inconsistent
with the trading pattern in the stock.
Each additional factor shall be
considered with a view toward
maintaining a fair and orderly market,
the protection of investors and the
public interest.
Numerical Guidelines Applicable to
Volatile Market Opens
The Exchange proposes to give the
Exchange the ability to expand the
Numerical Guidelines applicable to
executions occurring between 9:30 a.m.
and 10 a.m. based on the disseminated
value of the S&P 500 Futures at 9:15
a.m. When the S&P Futures are up or
down 3% up to but not including 5%
at 9:15 a.m., the Numerical Guidelines
are doubled. When the S&P Futures are
up or down 5% or greater at 9:15 a.m.,
the Numerical Guidelines are tripled.
The Exchange believes that the S&P 500
futures contract is an appropriate and
reliable barometer of market activity
prior to the market opening due to its
broad based market coverage and deep
liquidity. Using the S&P 500 Futures
disseminated value at 9:15 a.m. as the
barometer of market activity, the
Exchange is providing a transparent
means of offering adjusted guidelines in
times of volatile market activity.
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Outlier Executions
The proposed amendments to interim
Rule 128 provide that the Officer may
consider requests for review received
after thirty (30) minutes, but not longer
than sixty (60) minutes after the
execution in question in the case of an
Outlier Execution. An Outlier Execution
is an execution where, (1) the execution
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price of the security is greater than three
times the current Numerical Guidelines,
or (2) the execution price of the security
breaches the 52-week high or low, in
which case the Exchange may consider
Additional Factors to determine if the
execution qualifies for review or if the
Exchange shall decline to act.
Review Procedures
Initial Determination
Under the current rule, if the Officer
determines that the execution is not
clearly erroneous, the Officer shall not
take any action in connection with the
completed execution. In the event that
the Officer determines that the
execution in dispute is clearly
erroneous, the Officer shall either
declare the execution null and void or
modify one or more of the terms of the
transaction to achieve an equitable
rectification of the error that would
place the parties in the same position,
or as close as possible to the same
position that they would have been in,
had the error not occurred. Pursuant to
the proposed rule, in the event the
Officer determines there is a clearly
erroneous execution, the Officer may
declare the execution null and void or,
if such transaction occurred only on the
Exchange and no contemporaneous
transaction(s) occurred on another
market center(s) at a price that meets or
exceeds the applicable Numerical
Guidelines and if the Exchange has no
actual knowledge of a clearly erroneous
execution review of a contemporaneous
transaction of the subject security on
another market center, modify one or
more of the terms of the transaction to
achieve an equitable rectification of the
error that would place the parties in the
same position, or as close as possible to
the same position that they would have
been in, had the error not occurred.
For purposes of the proposed Rule, a
transaction will be considered to have
been contemporaneous if it was
reported to the Consolidated Tape
within a reasonable time frame of the
transaction under review. Such time
frame shall be determined by the Officer
at the time of the clearly erroneous
determination based on the liquidity of
the relevant security, but shall in no
case be less than one (1) second before
or after the time of execution on the
Exchange. In assessing whether there
was a contemporaneous transaction on
another market center, the Exchange
will consider the existence of any
clearly erroneous review of a transaction
in the subject security on another
market center of which it has actual
knowledge, which may be indicative
that the transaction under review on
such other market center was
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51929
contemporaneous with the transaction
under review on the Exchange.
However, the Exchange will not be
required to initiate communication with
other market centers to determine the
existence of any such review(s).
For purposes of the proposed rule,
whenever the rule provides authority for
the Officer to modify or adjust a clearly
erroneous execution, in addition to
authority to declare the execution null
and void, the Officer’s authority to
modify or adjust the clearly erroneous
execution is subject to the conditions
that there were no contemporaneous
transactions on other markets and that
the Exchange had no actual knowledge
of a clearly erroneous execution review
of a contemporaneous transaction of the
subject security on another market
center, as described above.
The Exchange also proposes adding
language stating that a determination
shall be made generally within thirty
(30) minutes of receipt of the complaint,
but in no case later than the start of the
regular trading hours of the Exchange on
the following trading day. Rulings made
outside of thirty (30) minutes by an
Officer will not fail for lack of
timeliness. The guideline simply
provides participants an appropriate
expectation that a ruling will generally
be made within thirty (30) minutes and
in no case later than the start of the
regular trading hours of the Exchange on
the following trading day.
Appeals
The Exchange proposes to amend the
appeals procedure for trades that are
deemed to be clearly erroneous. First,
the Exchange will no longer accept
appeal requests via facsimile. Similar to
the proposed language for an initial
request for a ruling, all appeal requests
must be made via e-mail, except for
those requests for appeals from
Exchange members who trade on the
Floor of the Exchange. Members who
trade on the Floor of the Exchange may
also submit requests for appeals in
person from the Floor.
The current rule provides that the
Exchange shall review and render a
decision upon an appeal within a
timeframe provided by the Exchange.
The proposed rule offers more definite
guidelines to ensure the expedient
resolution of appeals. It requires the
Exchange to review appeals as soon as
practicable, but generally on the same
day as the executions under review.
Appeal requests received between 3 ET
and the close of trading should be made
as soon as practicable, but in no case
later than the trading day following the
date of the execution under review.
Appeal decisions will not fail for lack of
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timeliness. This revised provision
provides participants a reasonable
expectation of when a ruling on appeal
will generally be made.
Further, the proposed rule declares
that any determination made by an
Officer or by the CEE Panel shall be
rendered without prejudice as to the
right of the parties to the execution to
submit their dispute to arbitration. This
provision simply clarifies the fact that
nothing in the proposed rule limits or
impedes the rights of the parties to
arbitrate their dispute.
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System Disruption and Malfunctions
Currently, within the System
Disruptions and Malfunctions section of
the Rule, after an Officer determines
that a trade was clearly erroneous he
may declare the execution null and void
or modify the trade to attempt to
achieve an equitable rectification of the
error. Under the proposed rule, when
the Officer determines that an execution
is clearly erroneous, the Officer shall
either declare the transaction null and
void or, if such transaction occurred
only on the Exchange and no
contemporaneous transaction(s)
occurred on another market center(s) at
a price that meets or exceeds the
applicable Numerical Guidelines and if
the Exchange has no actual knowledge
of a clearly erroneous execution review
of a contemporaneous transaction of the
subject security on another market
center, modify one or more of the terms
of the transaction to achieve an
equitable rectification of the error that
would place the parties in the same
position, or as close as possible to the
same position that they would have
been in, had the error not occurred. This
rule change supports the goal to provide
market-wide consistency to the
resolution of clearly erroneous
executions that occur on multiple
markets.
The proposed rule also provides that,
in the event of a disruption or a
malfunction, the Officer will rely on the
proposed Numerical Guidelines in
determining whether an execution is
clearly erroneous. However, the Officer
may also use a lower Numerical
Guideline if necessary to maintain a fair
and orderly market, protect investors,
and protect the public interest. The
proposed rule also adds that actions
taken under these circumstances must
be taken within thirty (30) minutes of
detection of the erroneous execution in
the ordinary case, and by no later than
the start of the regular trading hours of
the Exchange on the day following the
date of the execution under review
when extraordinary circumstances exist.
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18:31 Oct 07, 2009
Jkt 220001
Officers Acting on Their Own Motion
The Exchange proposes to add a
section to the Rule that will grant an
Officer the ability to act on his or her
own motion to review potentially
erroneous executions. Under the current
rule, an Officer has the ability to act
upon his or her own motion only in the
event of a System Disruption or
Malfunction. The proposed rule would
allow an Officer to review executions
and rely on the Numerical Guidelines
under any circumstance.
Under the proposed rule, an Officer
acting on its own motion, may review
potentially erroneous executions that
occur on the Exchange and shall either
declare the transaction null and void or,
if such transaction occurred only on the
Exchange and no contemporaneous
transaction(s) occurred on another
market center(s) at a price that meets or
exceeds the applicable Numerical
Guidelines and if the Exchange has no
actual knowledge of a clearly erroneous
execution review of a contemporaneous
transaction of the subject security on
another market center, modify one or
more of the terms of the transaction to
achieve an equitable rectification of the
error that would place the parties in the
same position, or as close as possible to
the same position that they would have
been in, had the error not occurred. This
rule change supports the goal to provide
market-wide consistency to the
resolution of clearly erroneous
executions that occur on multiple
markets.
In extraordinary circumstances an
Officer may apply a lower Numerical
Guideline to review a trade if it is
determined that such action is necessary
to maintain a fair and orderly market or
protect investors and the public interest.
In some instances the Exchange may
detect a single execution that breaches
the Numerical Guidelines but is not the
subject of a ruling request. This
provision gives the Exchange the ability
to review such executions. Additionally,
in practice clearly erroneous executions
may involve multiple parties and
multiple executions. The Exchange
proposes this provision to permit an
Officer to rule on a group of executions
related to the same occurrence or event
as a whole, with or without a formal
request for a ruling from an affected
party.
Trade Nullification and Price
Adjustments for UTP Securities That
Are the Subject of Initial Public
Offerings
The proposed Rule also modifies the
Exchange’s policy on trade nullification
and UTP securities that are subject to
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
initial public offerings. Under the
current Rule, a clearly erroneous
execution may be deemed to have
occurred in the opening execution of the
subject security if the execution price of
the opening execution on the Exchange
is the lesser of $1.00 or 10% away from
the opening price on the listing
exchange or association. Under the
proposed rule, in such circumstances,
the Officer shall either decline to take
action in connection with the completed
transaction, declare the transaction null
and void or, if such transaction occurred
only on the Exchange and no
contemporaneous transaction(s)
occurred on another market center(s) at
a price that meets or exceeds the
applicable Numerical Guidelines and if
the Exchange has no actual knowledge
of a clearly erroneous execution review
of a contemporaneous transaction of the
subject security on another market
center, adjust the transaction price to
the opening price on the listing
exchange or association.
Pursuant to the proposed rule, clearly
erroneous executions of subsequent
executions of the subject security will
be reviewed in the same manner as the
procedure set forth in (e)(1). Absent
extraordinary circumstances, action of
the Officer must be taken in a timely
fashion, generally within thirty (30)
minutes of the detection of the
erroneous execution. In extraordinary
circumstances, the reviewing Officer
may take action by no later than the
start of the regular trading hours of the
Exchange on the day following the date
of the execution under review.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) 6 of the
Securities Exchange Act of 1934 (the
‘‘Exchange Act’’), in general, and
furthers the objectives of Section
6(b)(5) 7 in particular in that it is
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
facilitating transactions in securities,
and to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system. The proposed rule change
provides transparency and finality for
participants and creates consistent
results across U.S. equities exchanges
with respect to clearly erroneous
executions. This proposed change
further promotes the maintenance of a
fair and orderly market, the protection
6 15
7 15
E:\FR\FM\08OCN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
08OCN1
Federal Register / Vol. 74, No. 194 / Thursday, October 8, 2009 / Notices
of investors and the protection of the
public interest.
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 does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 8 and Rule 19b–
4(f)(6) thereunder.9
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 10 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6) 11
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange requests
that the Commission waive the 30-day
operative delay so that it may
implement the new rule on October 5,
2009, the same date as the other equities
exchanges. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest
because it will allow the Exchange to
begin applying the new rule on the same
date as the other equities exchanges.12
Application of the new rule on this date
should help foster transparency and
8 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
10 17 CFR 240.19b–4(f)(6).
11 17 CFR 240.19b–4(f)(6).
12 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposal’s impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
mstockstill on DSKH9S0YB1PROD with NOTICES
9 17
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18:31 Oct 07, 2009
Jkt 220001
consistency among those exchanges that
adopt clearly erroneous execution rules
substantially similar to those previously
approved by the Commission.13 For
these reasons, the Commission
designates that the proposed rule
change become operative on October 5,
2009.
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.
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–2009–103 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–2009–103. 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, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of such filing also will be
available for inspection and copying at
the principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make publicly available. All
submissions should refer to File
Number SR–NYSE–2009–103 and
should be submitted on or before
October 29, 2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–24245 Filed 10–7–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60777; File No. SR–BX–
2009–060]
Self-Regulatory Organizations;
NASDAQ OMX BX; Notice of Filing and
Immediate Effectiveness of a Proposal
To Amend Exchange Rule 11890
Governing Clearly Erroneous
Executions Pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule
October 2, 2009.
19b–4 thereunder,2 notice is hereby
given that on October 1, 2009, NASDAQ
OMX BX (‘‘Exchange’’ or ‘‘BX’’) 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. BX has
designated the proposed rule change as
constituting a rule change under Rule
19b-4(f)(6) under the Act,3 which
renders the proposal effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
DATES:
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
BX is proposing to amend Exchange
Rule 11890 governing clearly erroneous
executions. The text of the filing is
available at https://
14 17
13 See
Securities Exchange Act Release No. 60706
(September 22, 2009), 74 FR 49416 (September 28,
2009) (NYSEArca–2009–36).
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
51931
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6).
1 15
E:\FR\FM\08OCN1.SGM
08OCN1
]]>Agencies
[Federal Register Volume 74, Number 194 (Thursday, October 8, 2009)]
[Notices]
[Pages 51926-51931]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-24245]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60781; File No. SR-NYSE-2009-103]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC
Amending NYSE Interim Rule 128 Governing Clearly Erroneous Executions
for NYSE Equities
October 2, 2009.
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 October 2, 2009, the New York Stock Exchange LLC (``Exchange'' or
``NYSE'') 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. NYSE has
designated the proposed rule change as constituting a rule change under
Rule
[[Page 51927]]
19b-4(f)(6) under the Act,\3\ which renders the proposal effective upon
filing with the Commission. 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\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend NYSE interim Rule 128 (Clearly
Erroneous Executions for NYSE Equities) governing clearly erroneous
executions for NYSE equities. The text of the proposed rule change is
available at the Exchange, the Commission's Public Reference Room, and
https://www.nyse.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend interim Rule 128 in order to improve
the Exchange's policies and procedures regarding clearly erroneous
executions that occur on the NYSE and on other national market centers.
The proposed changes are part of a market-wide effort designed to
provide transparency and finality with respect to clearly erroneous
executions. This effort seeks to achieve consistent results for
participants across U.S. equities exchanges while maintaining a fair
and orderly market, protecting investors and protecting the public
interest. The proposed changes are more fully discussed below.
Definition
The Exchange will maintain the meaning of the definition of a
clearly erroneous execution, but proposes to add clarifying language
with respect to cancelled trades. The proposed change identifies that
when a clearly erroneous execution occurs and both parties agree to
cancel the execution and when a trade is determined by the Exchange to
be clearly erroneous such executions will be removed ``from the
Consolidated Tape.'' \4\ A trade will be removed from the Consolidated
Tape only when the determination is deemed final and any applicable
appeals have been exhausted.
---------------------------------------------------------------------------
\4\ For purposes of this Rule, ``removed from the Consolidate
Tape'' means that a subsequent message will be sent to the
Consolidated Tape indicating that a previously executed trade has
been cancelled.
---------------------------------------------------------------------------
Member or Member Organization Initiated Review Requests
The Exchange proposes to amend interim Rule 128 to update the
procedures for requesting a review of a clearly erroneous execution.
First, and throughout Rule 128, the term ``Officer'' will be defined as
an Officer of the Exchange or such other senior level employee
designee. Next, the proposed rule will require that requests for review
be made by electronic mail (``e-mail'') or other electronic means
specified from time to time by the Exchange, except for market
participants who trade on the Floor of the Exchange, who will continue
to be permitted to make such requests for review in person on the Floor
of the Exchange. Requiring requests for review to be made
electronically, except those requests made in person on the Floor of
the Exchange, creates a standard format that can easily be logged and
tracked. The Exchange will continue to publish the e-mail address and
other electronic means to be used for all clearly erroneous filings in
a circular distributed to members and member organizations.
The Exchange further proposes that requests for review must be
received by the Exchange within thirty (30) minutes of the execution
time for orders initially routed to and executed on the Exchange. The
Exchange proposes that members and member organizations submit certain
essential identifying information with the request including the time
of the execution(s), security symbol(s), number of shares, price(s),
side (bought or sold), and factual basis for believing that the trade
is clearly erroneous. The current rule requires requests for review to
be received within fifteen (15) minutes of the execution and does not
specify what information is required. The Exchange believes that thirty
(30) minutes is an appropriate time frame that offers the requesting
party sufficient time to gather and submit all required information.
The proposed rule also requires the Exchange to notify the
counterparty to a trade upon receipt of a timely filed request for
review that satisfies the Numerical Guidelines set forth within the
rule. This proposed language eliminates the requirement that
counterparties be notified of every request for a ruling and instead
requires notice only when a request is filed in a timely manner and
satisfies the Numerical Guidelines. This change alleviates the burden
on the Exchange of notifying the counterparty when a request for review
does not merit a ruling.
The Exchange proposes to amend interim Rule 128 to allow an Officer
to request additional information from each party to an execution under
review. Parties to an execution under review will have thirty (30)
minutes from the time of the request to provide additional supporting
information.
Routed Executions
The Exchange proposes to give other market centers an additional
thirty (30) minutes from the receipt of their participant's timely
filing to request a ruling, but no longer than sixty (60) minutes from
the time of the execution under review. This provision accounts for
those executions initially directed to an away market center and
subsequently routed by that away market center to the Exchange.
For example, assume an order is initially routed by a participant
to Market Center A and subsequently routed to the NYSE where the order
is executed at a price outside of the Numerical Guidelines. This
provision generally requires Market Center A to file with the Exchange
within thirty (30) minutes from the time it receives its participant's
timely filed request for review. This provision caps the filing
deadline for an away market center at sixty (60) minutes from the time
of the execution under review.
Threshold Factors
Currently, the Exchange's Clearly Erroneous Execution rule does not
identify specific numeric guidelines for determining what constitutes a
clearly erroneous execution. The current rule simply provides that ``an
Officer of the Exchange * * * shall review the transaction * * * and
determine whether it is clearly erroneous, with a view toward
maintaining a fair and orderly market and the protection of investors
and the public interest.'' \5\ In practice, the Exchange currently
incorporates the internal guidelines in the Exchange's Clearly
Erroneous Execution policy. The Exchange proposes adding certain
numerical thresholds to the Rule that explicitly state what
constitutes, among other
[[Page 51928]]
factors, a possible clearly erroneous execution.
---------------------------------------------------------------------------
\5\ NYSE Rule 128(b).
Numerical Guidelines
The proposed Numerical Guidelines state that an execution executed
during the regular trading hours and after hours of the Exchange may be
found to be clearly erroneous only if the price of the execution to buy
is greater, or less in the case of a sale, than the Reference Price by
an amount that equals or exceeds the numerical guidelines for a
particular execution category. The execution time of the transaction
under review determines whether the Numerical Guideline applied is for
the regular trading hours or the after hours of the Exchange. The
Reference Price shall be equal to the Consolidated Last Sale
immediately prior to the execution under review, unless unusual
circumstances are present. The proposed guidelines for sales greater
than $0.00 up to and including $25.00 are 10% for the regular trading
hours and 20% for the after hours of the Exchange. The proposed
guidelines for sales greater than $25.00 up to and including $50.00 are
5% for the regular trading hours and 10% for the after hours of the
Exchange. The proposed guidelines for sales greater than $50.00 are 3%
for the regular trading hours and 6% for the after hours of the
Exchange. A filing involving five or more securities by the same member
or member organization will be aggregated into a single filing called a
``Multi-Stock Event.'' In the case of a Multi-Stock Event, the proposed
guidelines are 10% per security for the regular trading hours and after
hours of the Exchange. In the case of Leveraged ETF/ETN securities, the
above guidelines are to be multiplied by the leverage multiplier of the
security. Executions that do not meet or exceed the Numerical
Guidelines will not be eligible for review under this section. The
following chart summarizes the proposed Numerical Guidelines.
----------------------------------------------------------------------------------------------------------------
Regular trading hours of the After hours of the exchange
exchange numerical guidelines numerical guidelines (subject
Reference price: Consolidated Last Sale (subject execution's % difference execution's % difference from
from the consolidated last sale): the consolidated last sale):
----------------------------------------------------------------------------------------------------------------
Greater than $0.00 up to and including 10%.............................. 20%.
$25.00.
Greater than $25.00 up to and including 5%............................... 10%.
$50.00.
Greater than $50.00........................ 3%............................... 6%.
Multi-Stock Event--Filings involving five 10%.............................. 10%.
or more securities by the same member or
member organization will be aggregated
into a single filing.
Leveraged ETF/ETN securities............... Regular Trading Hours of the After Hours of the Exchange
Exchange Numerical Guidelines Numerical Guidelines multiplied
multiplied by the leverage by the leverage multiplier
multiplier (i.e. 2x). (i.e. 2x).
----------------------------------------------------------------------------------------------------------------
Establishing Numerical Guidelines within the Rule brings regulatory
transparency and consistency in the application of the rules of the
Exchange. These Numerical Guidelines represent the general consensus
approach and were developed based on the collective experiences of a
market-wide group. The Exchange believes that the thresholds
established are fair and appropriate and apply evenly to all
participants.
Unusual Circumstances
The Exchange further proposes that in Unusual Circumstances the
Exchange may, in its discretion and with a view toward maintaining a
fair and orderly market and the protection of investors and the public
interest, use a Reference Price other than the consolidated last sale.
Unusual Circumstances may include periods of extreme market volatility,
sustained illiquidity, or widespread system issues. Other Reference
Prices that the Exchange may use would include the consolidated inside
price, the consolidated opening price, the consolidated prior close, or
the consolidated last sale prior to a series of executions.
The following example explains the use of a Reference Price equal
to the consolidated last sale prior to a series of executions.
ABC has a consolidated last sale of $10.00. During the regular
trading hours of the Exchange Customer A enters a market order to buy
10,000 shares, although it had intended a market order for 1,000
shares. The size of the order is such that the order sweeps the NYSE
Display Book, which reflects 1,000 shares of liquidity offered at each
of following prices. Executions occur, moving through the depth of
Book, as follows:
Trade 1--1000 shares @ $10.00 (9000 remaining)
Trade 2--1000 shares @ $10.20 (8000 remaining)
Trade 3--1000 shares @ $10.40 (7000 remaining)
Trade 4--1000 shares @ $10.60 (6000 remaining)
Trade 5--1000 shares @ $10.80 (5000 remaining)
Trade 6--1000 shares @ $11.00 (4000 remaining)
Trade 7--1000 shares @ $11.20 (3000 remaining)
Trade 8--1000 shares @ $11.40 (2000 remaining)
Trade 9--1000 shares @ $11.60 (1000 remaining)
Trade 10--1000 shares @ $11.80 (complete)
Thus, to be eligible for review, an execution must be at a price
that is at least 10% higher than the consolidated last sale prior to
the series of executions. Customer A could request a ruling for trades
6 through 10, priced at $11.00 and above, but trades
1 through 5 would not be eligible for review.
Under the proposed rule the Exchange may also use a higher
Numerical Guideline if, after market participants have been alerted to
erroneous activity, the price of the security returns toward its prior
trading range but continues to trade at a price beyond the Numerical
Guidelines.
Joint Market Rulings
In the interest of achieving consistency across markets, the
Exchange proposes that, in events that involve other markets, the
Exchange would have the ability to use a different Reference Price and/
or Numerical Guideline. In these instances the Reference Price would be
determined based on a consensus among the Exchanges where the
executions occurred. Furthermore, when a ruling is made across markets,
the Exchange may determine that the ruling is not eligible for appeal
because immediate finality is necessary to maintain a fair and orderly
market and to protect investors and the public interest. While the
Exchange will coordinate its review of a clearly erroneous execution
with other affected market centers with the goal of rendering
consistent results across the market, the Exchange is not bound by
joint market rulings when such rulings
[[Page 51929]]
would violate other NYSE rules or are inconsistent with internal
policies of the Exchange.
Additional Factors
The proposed amendments to interim Rule 128 also enumerate some
additional factors that an Officer may consider when determining
whether an execution is clearly erroneous. These factors include, but
are not limited to, system malfunctions or disruptions, volume and
volatility for the security, derivative securities products that
correspond to greater than 100% in the direction of a tracking index,
news released for the security, whether trading in the security was
recently halted/resumed, whether the security is an IPO, whether the
security was subject to a stock-split, reorganization, or other
corporate action, overall market conditions, Opening and Late Session
executions, validity of the consolidated tape's trades and quotes,
consideration of primary market indications, Liquidity Replenishment
Points (``LRPs''), Depth Guidelines and executions inconsistent with
the trading pattern in the stock. Each additional factor shall be
considered with a view toward maintaining a fair and orderly market,
the protection of investors and the public interest.
Numerical Guidelines Applicable to Volatile Market Opens
The Exchange proposes to give the Exchange the ability to expand
the Numerical Guidelines applicable to executions occurring between
9:30 a.m. and 10 a.m. based on the disseminated value of the S&P 500
Futures at 9:15 a.m. When the S&P Futures are up or down 3% up to but
not including 5% at 9:15 a.m., the Numerical Guidelines are doubled.
When the S&P Futures are up or down 5% or greater at 9:15 a.m., the
Numerical Guidelines are tripled. The Exchange believes that the S&P
500 futures contract is an appropriate and reliable barometer of market
activity prior to the market opening due to its broad based market
coverage and deep liquidity. Using the S&P 500 Futures disseminated
value at 9:15 a.m. as the barometer of market activity, the Exchange is
providing a transparent means of offering adjusted guidelines in times
of volatile market activity.
Outlier Executions
The proposed amendments to interim Rule 128 provide that the
Officer may consider requests for review received after thirty (30)
minutes, but not longer than sixty (60) minutes after the execution in
question in the case of an Outlier Execution. An Outlier Execution is
an execution where, (1) the execution price of the security is greater
than three times the current Numerical Guidelines, or (2) the execution
price of the security breaches the 52-week high or low, in which case
the Exchange may consider Additional Factors to determine if the
execution qualifies for review or if the Exchange shall decline to act.
Review Procedures
Initial Determination
Under the current rule, if the Officer determines that the
execution is not clearly erroneous, the Officer shall not take any
action in connection with the completed execution. In the event that
the Officer determines that the execution in dispute is clearly
erroneous, the Officer shall either declare the execution null and void
or modify one or more of the terms of the transaction to achieve an
equitable rectification of the error that would place the parties in
the same position, or as close as possible to the same position that
they would have been in, had the error not occurred. Pursuant to the
proposed rule, in the event the Officer determines there is a clearly
erroneous execution, the Officer may declare the execution null and
void or, if such transaction occurred only on the Exchange and no
contemporaneous transaction(s) occurred on another market center(s) at
a price that meets or exceeds the applicable Numerical Guidelines and
if the Exchange has no actual knowledge of a clearly erroneous
execution review of a contemporaneous transaction of the subject
security on another market center, modify one or more of the terms of
the transaction to achieve an equitable rectification of the error that
would place the parties in the same position, or as close as possible
to the same position that they would have been in, had the error not
occurred.
For purposes of the proposed Rule, a transaction will be considered
to have been contemporaneous if it was reported to the Consolidated
Tape within a reasonable time frame of the transaction under review.
Such time frame shall be determined by the Officer at the time of the
clearly erroneous determination based on the liquidity of the relevant
security, but shall in no case be less than one (1) second before or
after the time of execution on the Exchange. In assessing whether there
was a contemporaneous transaction on another market center, the
Exchange will consider the existence of any clearly erroneous review of
a transaction in the subject security on another market center of which
it has actual knowledge, which may be indicative that the transaction
under review on such other market center was contemporaneous with the
transaction under review on the Exchange. However, the Exchange will
not be required to initiate communication with other market centers to
determine the existence of any such review(s).
For purposes of the proposed rule, whenever the rule provides
authority for the Officer to modify or adjust a clearly erroneous
execution, in addition to authority to declare the execution null and
void, the Officer's authority to modify or adjust the clearly erroneous
execution is subject to the conditions that there were no
contemporaneous transactions on other markets and that the Exchange had
no actual knowledge of a clearly erroneous execution review of a
contemporaneous transaction of the subject security on another market
center, as described above.
The Exchange also proposes adding language stating that a
determination shall be made generally within thirty (30) minutes of
receipt of the complaint, but in no case later than the start of the
regular trading hours of the Exchange on the following trading day.
Rulings made outside of thirty (30) minutes by an Officer will not fail
for lack of timeliness. The guideline simply provides participants an
appropriate expectation that a ruling will generally be made within
thirty (30) minutes and in no case later than the start of the regular
trading hours of the Exchange on the following trading day.
Appeals
The Exchange proposes to amend the appeals procedure for trades
that are deemed to be clearly erroneous. First, the Exchange will no
longer accept appeal requests via facsimile. Similar to the proposed
language for an initial request for a ruling, all appeal requests must
be made via e-mail, except for those requests for appeals from Exchange
members who trade on the Floor of the Exchange. Members who trade on
the Floor of the Exchange may also submit requests for appeals in
person from the Floor.
The current rule provides that the Exchange shall review and render
a decision upon an appeal within a timeframe provided by the Exchange.
The proposed rule offers more definite guidelines to ensure the
expedient resolution of appeals. It requires the Exchange to review
appeals as soon as practicable, but generally on the same day as the
executions under review. Appeal requests received between 3 ET and the
close of trading should be made as soon as practicable, but in no case
later than the trading day following the date of the execution under
review. Appeal decisions will not fail for lack of
[[Page 51930]]
timeliness. This revised provision provides participants a reasonable
expectation of when a ruling on appeal will generally be made.
Further, the proposed rule declares that any determination made by
an Officer or by the CEE Panel shall be rendered without prejudice as
to the right of the parties to the execution to submit their dispute to
arbitration. This provision simply clarifies the fact that nothing in
the proposed rule limits or impedes the rights of the parties to
arbitrate their dispute.
System Disruption and Malfunctions
Currently, within the System Disruptions and Malfunctions section
of the Rule, after an Officer determines that a trade was clearly
erroneous he may declare the execution null and void or modify the
trade to attempt to achieve an equitable rectification of the error.
Under the proposed rule, when the Officer determines that an execution
is clearly erroneous, the Officer shall either declare the transaction
null and void or, if such transaction occurred only on the Exchange and
no contemporaneous transaction(s) occurred on another market center(s)
at a price that meets or exceeds the applicable Numerical Guidelines
and if the Exchange has no actual knowledge of a clearly erroneous
execution review of a contemporaneous transaction of the subject
security on another market center, modify one or more of the terms of
the transaction to achieve an equitable rectification of the error that
would place the parties in the same position, or as close as possible
to the same position that they would have been in, had the error not
occurred. This rule change supports the goal to provide market-wide
consistency to the resolution of clearly erroneous executions that
occur on multiple markets.
The proposed rule also provides that, in the event of a disruption
or a malfunction, the Officer will rely on the proposed Numerical
Guidelines in determining whether an execution is clearly erroneous.
However, the Officer may also use a lower Numerical Guideline if
necessary to maintain a fair and orderly market, protect investors, and
protect the public interest. The proposed rule also adds that actions
taken under these circumstances must be taken within thirty (30)
minutes of detection of the erroneous execution in the ordinary case,
and by no later than the start of the regular trading hours of the
Exchange on the day following the date of the execution under review
when extraordinary circumstances exist.
Officers Acting on Their Own Motion
The Exchange proposes to add a section to the Rule that will grant
an Officer the ability to act on his or her own motion to review
potentially erroneous executions. Under the current rule, an Officer
has the ability to act upon his or her own motion only in the event of
a System Disruption or Malfunction. The proposed rule would allow an
Officer to review executions and rely on the Numerical Guidelines under
any circumstance.
Under the proposed rule, an Officer acting on its own motion, may
review potentially erroneous executions that occur on the Exchange and
shall either declare the transaction null and void or, if such
transaction occurred only on the Exchange and no contemporaneous
transaction(s) occurred on another market center(s) at a price that
meets or exceeds the applicable Numerical Guidelines and if the
Exchange has no actual knowledge of a clearly erroneous execution
review of a contemporaneous transaction of the subject security on
another market center, modify one or more of the terms of the
transaction to achieve an equitable rectification of the error that
would place the parties in the same position, or as close as possible
to the same position that they would have been in, had the error not
occurred. This rule change supports the goal to provide market-wide
consistency to the resolution of clearly erroneous executions that
occur on multiple markets.
In extraordinary circumstances an Officer may apply a lower
Numerical Guideline to review a trade if it is determined that such
action is necessary to maintain a fair and orderly market or protect
investors and the public interest. In some instances the Exchange may
detect a single execution that breaches the Numerical Guidelines but is
not the subject of a ruling request. This provision gives the Exchange
the ability to review such executions. Additionally, in practice
clearly erroneous executions may involve multiple parties and multiple
executions. The Exchange proposes this provision to permit an Officer
to rule on a group of executions related to the same occurrence or
event as a whole, with or without a formal request for a ruling from an
affected party.
Trade Nullification and Price Adjustments for UTP Securities That Are
the Subject of Initial Public Offerings
The proposed Rule also modifies the Exchange's policy on trade
nullification and UTP securities that are subject to initial public
offerings. Under the current Rule, a clearly erroneous execution may be
deemed to have occurred in the opening execution of the subject
security if the execution price of the opening execution on the
Exchange is the lesser of $1.00 or 10% away from the opening price on
the listing exchange or association. Under the proposed rule, in such
circumstances, the Officer shall either decline to take action in
connection with the completed transaction, declare the transaction null
and void or, if such transaction occurred only on the Exchange and no
contemporaneous transaction(s) occurred on another market center(s) at
a price that meets or exceeds the applicable Numerical Guidelines and
if the Exchange has no actual knowledge of a clearly erroneous
execution review of a contemporaneous transaction of the subject
security on another market center, adjust the transaction price to the
opening price on the listing exchange or association.
Pursuant to the proposed rule, clearly erroneous executions of
subsequent executions of the subject security will be reviewed in the
same manner as the procedure set forth in (e)(1). Absent extraordinary
circumstances, action of the Officer must be taken in a timely fashion,
generally within thirty (30) minutes of the detection of the erroneous
execution. In extraordinary circumstances, the reviewing Officer may
take action by no later than the start of the regular trading hours of
the Exchange on the day following the date of the execution under
review.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \6\ of the
Securities Exchange Act of 1934 (the ``Exchange Act''), in general, and
furthers the objectives of Section 6(b)(5) \7\ in particular in that it
is 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 facilitating
transactions in securities, and to remove impediments to and perfect
the mechanism of a free and open market and a national market system.
The proposed rule change provides transparency and finality for
participants and creates consistent results across U.S. equities
exchanges with respect to clearly erroneous executions. This proposed
change further promotes the maintenance of a fair and orderly market,
the protection
[[Page 51931]]
of investors and the protection of the public interest.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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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 does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6) thereunder.\9\
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \10\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6) \11\ permits the Commission to
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange requests
that the Commission waive the 30-day operative delay so that it may
implement the new rule on October 5, 2009, the same date as the other
equities exchanges. The Commission believes that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest because it will allow the Exchange to begin applying
the new rule on the same date as the other equities exchanges.\12\
Application of the new rule on this date should help foster
transparency and consistency among those exchanges that adopt clearly
erroneous execution rules substantially similar to those previously
approved by the Commission.\13\ For these reasons, the Commission
designates that the proposed rule change become operative on October 5,
2009.
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\10\ 17 CFR 240.19b-4(f)(6).
\11\ 17 CFR 240.19b-4(f)(6).
\12\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposal's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
\13\ See Securities Exchange Act Release No. 60706 (September
22, 2009), 74 FR 49416 (September 28, 2009) (NYSEArca-2009-36).
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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.
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-2009-103 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-2009-103. 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, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available. All
submissions should refer to File Number SR-NYSE-2009-103 and should be
submitted on or before October 29, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-24245 Filed 10-7-09; 8:45 am]
BILLING CODE 8011-01-P
