Self-Regulatory Organizations; NYSE Amex LLC; Order Approving a Proposed Rule Change Rescinding NYSE Information Memoranda 04-27 and 07-66 and Issuing a New Information Memo Concerning the Exchange's Gap Quote Policy, 1439-1441 [2010-192]

Download as PDF Federal Register / Vol. 75, No. 6 / Monday, January 11, 2010 / Notices trading has closed. Instead, where there is a significant imbalance in a security at the close of trading, members and member organizations should use the procedures provided under Exchange Rule 123C(8) when attempting to mitigate the imbalance. • The Information Memo currently includes an example illustrating implementation of a gap quote following an influx of orders from the Floor. The Exchange has proposed to add an example to the Information Memo which illustrates how the Policy works when the imbalance results in a liquidity replenishment point being reached.6 • Finally, because DMMs no longer act as agent for orders on the Display Book under the rules of NYSE’s New Market Model,7 the proposed Information Memo would clarify that a DMM who fails to follow the Policy would not be in violation the Order Display rule 8 and/or the Firm Quote rule 9 under Regulation NMS, but could be liable under NYSE Rules for a failure to maintain a fair and orderly market or a failure to observe high standards of commercial honor and just and equitable principles of trade.10 III. Discussion and Commission Findings The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.11 In particular, it is consistent with Section 6(b)(5) of the Act,12 which requires, among other things, that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The proposed rule change also supports the principles of Section 11A(a)(1) 13 of the Act in that it seeks to ensure the economically efficient execution of securities transactions and fair competition among 6 See NYSE Rule 1000(a)(iv). October 2008, the Commission approved NYSE’s proposal to eliminate specialists and introduce DMMs. See Securities Exchange Act Release No. 58845 (October 24, 2008), 73 FR 64379 (October 29, 2008) (SR–NYSE–2008–46). 8 See 17 CFR 242.604. 9 See 17 CFR 242.602. 10 See NYSE Rules 104(a), 104(f) and 2010. 11 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). 12 15 U.S.C. 78f(b)(5). 13 15 U.S.C. 78k–1(a)(1). srobinson on DSKHWCL6B1PROD with NOTICES 7 In VerDate Nov<24>2008 16:06 Jan 08, 2010 Jkt 220001 brokers and dealers and among exchange markets. The Exchange stated in the proposal that it believes the current volume and value requirements are too high in light of current market conditions. Recent trends in market activity have driven down both average trade sizes and average stock prices. As a result, the current volume and value requirements are met less frequently than they once were, and there are fewer occasions on which a DMM may use gap quotes to facilitate price discovery and minimize short-term price dislocation. The Exchange stated in its proposal that, based on its analysis of historical market conditions, the proposal to lower the gap quote volume and value requirements will permit an increased use of gap quotes, which it believed would be appropriate for current market conditions. In addition, the Exchange did not believe that lowering the requirements would cause an increase in the use of gap quotes to such a degree that would negatively impact the quality of the Exchange’s market. The revised volume and value requirements should provide greater transparency and efficiency and additional reductions in volatility, consistent with the purpose of the Policy. The Commission believes that the remaining aspects of the proposed rule change set forth in the Notice are either technical or non-substantive in nature, or are clarifications of the existing gap quote policy, and therefore are consistent with the Act. The Commission notes that the Exchange represented in the Notice that it has reasonable policies and procedures to surveil DMMs’ use of gap quotes and to detect the potential misuse of gap quotes in violation of Exchange rules and Federal securities laws. Such surveillance should provide the Exchange with information that will be helpful in assessing the effects of an increased number of gap quotes on the Exchange’s market. In light of the foregoing, the Commission finds that the proposed rule change is consistent with the Act and the rules and regulations thereunder. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,14 that the proposed rule change (SR–NYSE–2009– 112) be, and it hereby is, approved. 14 15 15 17 PO 00000 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). Frm 00107 Fmt 4703 Sfmt 4703 1439 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–191 Filed 1–8–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–61276; File No. SR– NYSEAmex–2009–82] Self-Regulatory Organizations; NYSE Amex LLC; Order Approving a Proposed Rule Change Rescinding NYSE Information Memoranda 04–27 and 07–66 and Issuing a New Information Memo Concerning the Exchange’s Gap Quote Policy January 4, 2010. I. Introduction On November 9, 2009, the NYSE Amex LLC (‘‘NYSEAmex’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to rescind NYSE Information Memoranda 04–27 and 07–66 and issue a new Information Memo that provides updated parameters for, and guidance on the application of, the Exchange’s Gap Quote Policy (the ‘‘Policy’’). In order to ensure an orderly transition to usage of the new parameters, the Exchange has proposed that these changes be made operative ten business days after the date of this order. The proposed rule change was published for comment in the Federal Register on December 1, 2009.3 The Commission received no comment letters on the proposal. This order approves the proposed rule change. II. Description of the Proposal 4 The purpose of the Policy is to provide public notice of order imbalances for securities, facilitate price discovery, and minimize short-term price dislocation, by allowing for the entry of offsetting orders or the cancellation of orders on the side of an imbalance. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 61049 (November 23, 2009), 74 FR 62851 (‘‘Notice’’). 4 For a full description of the proposal, including an overview of the history of the Policy and a detailed description of the current terms of the Policy, see id. 2 17 E:\FR\FM\11JAN1.SGM 11JAN1 1440 Federal Register / Vol. 75, No. 6 / Monday, January 11, 2010 / Notices srobinson on DSKHWCL6B1PROD with NOTICES An order imbalance may occur when the Exchange receives a sudden influx of orders for a particular security on the same side of the market within a short time interval, or when one or more large-size orders for a security are entered, and there is insufficient offsetting interest. When an imbalance exists that the Designated Market Maker (‘‘DMM’’) determines would cause a significant price dislocation, the Policy provides that the DMM should widen the spread between the bid and offer— a process known as ‘‘gapping the quote.’’ The use of a gap quote signals the existence of the imbalance to the market in order to attract contra-side liquidity and mitigate volatility. The proposed Information Memo includes a summary of the options available to a DMM when publishing a gap quote. In this situation, a DMM may: (1) Trade out of the gap quote by executing contra side interest against the imbalance (allowing for any cancellations); (2) update the gap quote, in consultation with a senior-level Floor Official; or (3) request an order imbalance trading halt in the security at issue, in consultation with a senior-level Floor Official. Under the proposal, the volume requirement for implementing a gap quote would be reduced from at least 10,000 shares to at least 5,000 shares, and the value requirement for implementing a gap quote would be reduced from $200,000 or more to $100,000 or more. If either requirement is met, the DMM may implement a gap quote if it determines the imbalance would cause a significant price dislocation. In addition, the Exchange has proposed to clarify the factors DMMs consider when setting the price of the gap quote. Finally, the Exchange has proposed to clarify certain aspects of the Policy and make other technical or non-substantive changes. A. Reduced Minimum Size and Value Requirements The Exchange has proposed to reduce the minimum size and value requirements for the use of a gap quote under the Policy to at least 5,000 shares or a market value of $100,000 or more. The Exchange believes that these lower thresholds better reflect current market conditions. In addition to reducing the quantitative requirements for implementing a gap quote, the Exchange has proposed to add language clarifying that, notwithstanding meeting the minimum size or value requirement, an imbalance must also be anticipated to cause a significant price dislocation in the stock at issue in order to justify a gap quote. The Exchange believes it is VerDate Nov<24>2008 16:06 Jan 08, 2010 Jkt 220001 important to emphasize that whether a gap quote is appropriate depends on the characteristics of a security as much as on the Policy’s minimum requirements. B. Setting the Price of the Gap Quote The current Information Memo instructs DMMs to set the price of a gap quote ‘‘at the price at which the DMM believes the stock would trade if no contra side interest developed or no cancellations occurred[.]’’ The Exchange has instead proposed that the DMM should publish the gap quote at the price where the DMM ‘‘reasonably anticipates’’ the stock would trade if no contra side interest developed or no cancellations occurred, which the Exchange believes helps clarify the guidance. The Exchange has also proposed to clarify that the Policy still requires a DMM to take into account, ‘‘to the extent known,’’ executable orders, e-Quotes and verbal interest in the Crowd (on the side of the market opposite the imbalance) at prices better than the price set by the DMM as the side of the gap quote opposite the imbalance when making his or her pricing determination. If the imbalance is known to be limited as to price, the DMM should not set the gap quote higher than that limit price. The Exchange also has proposed to add a provision reminding the DMMs that, at the time they publish a gap quote, they should set the price of the gap quote such that it is likely to result in a trade of at least the minimum size of 5,000 shares or $100,000 in value, thus clearing all, or a substantial portion of, the imbalance. C. Other Clarifications and Technical or Non-Substantive Changes The Exchange has also proposed several additional changes. A complete list of these changes is set forth in the Notice.5 Among these changes are the following: • The Exchange has proposed to add language to the Information Memo clarifying the DMM’s responsibilities when implementing a gap quote. DMMs must balance the need for accurate price discovery with the need to attract contra side interest and trade out of the gap quote as soon as possible. In doing so, the DMM should, in consultation with a senior-level Floor Official, consider updating the gap quote after initial publication if doing so is necessary to attract sufficient contra side interest. • The Exchange has proposed to add language reminding members and member organizations that the gap quote procedures may not be initiated after 5 See PO 00000 id. at 62853–54. Frm 00108 Fmt 4703 Sfmt 4703 trading has closed. Instead, where there is a significant imbalance in a security at the close of trading, members and member organizations should use the procedures provided under NYSE Amex Equities Rule 123C(8) when attempting to mitigate the imbalance. • The Information Memo currently includes an example illustrating implementation of a gap quote following an influx of orders from the Floor. The Exchange has proposed to add an example to the Information Memo which illustrates how the Policy works when the imbalance results in a liquidity replenishment point being reached.6 • Finally, because DMMs no longer act as agent for orders on the Display Book under the rules of the Exchange’s New Market Model,7 the proposed Information Memo would clarify that a DMM who fails to follow the Policy would not be in violation the Order Display rule 8 and/or the Firm Quote rule 9 under Regulation NMS, but could be liable under NYSE Amex Equities Rules for a failure to maintain a fair and orderly market or a failure to observe high standards of commercial honor and just and equitable principles of trade.10 III. Discussion and Commission Findings The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.11 In particular, it is consistent with Section 6(b)(5) of the Act,12 which requires, among other things, that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The proposed rule 6 See NYSE Amex Equities Rule 1000(a)(iv). October 2008, the Commission approved The New York Stock Exchange’s proposal to eliminate specialists and introduce DMMs. See Securities Exchange Act Release No. 58845 (October 24, 2008), 73 FR 64379 (October 29, 2008) (SR–NYSE–2008– 46). NYSE Amex adopted NYSE’s trading rules, including the rules regarding DMMs and the New Market Model, in November 2008. See Securities Exchange Act Release No. 59022 (November 26, 2008), 73 FR 73683 (December 3, 2008) (SR– NYSEALTR–2008–10). 8 See 17 CFR 242.604. 9 See 17 CFR 242.602. 10 See NYSE Amex Equities Rules 104(a), 104(f) and 2010. 11 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). 12 15 U.S.C. 78f(b)(5). 7 In E:\FR\FM\11JAN1.SGM 11JAN1 srobinson on DSKHWCL6B1PROD with NOTICES Federal Register / Vol. 75, No. 6 / Monday, January 11, 2010 / Notices change also supports the principles of Section 11A(a)(1) 13 of the Act in that it seeks to ensure the economically efficient execution of securities transactions and fair competition among brokers and dealers and among exchange markets. The Exchange stated in the proposal that it believes the current volume and value requirements are too high in light of current market conditions. Recent trends in market activity have driven down both average trade sizes and average stock prices. As a result, the current volume and value requirements are met less frequently than they once were, and there are fewer occasions on which a DMM may use gap quotes to facilitate price discovery and minimize short-term price dislocation. The Exchange stated in its proposal that, based on its analysis of historical market conditions, the proposal to lower the gap quote volume and value requirements will permit an increased use of gap quotes, which it believed would be appropriate for current market conditions. In addition, the Exchange did not believe that lowering the requirements would cause an increase in the use of gap quotes to such a degree that would negatively impact the quality of the Exchange’s market. The revised volume and value requirements should provide greater transparency and efficiency and additional reductions in volatility, consistent with the purpose of the Policy. The Commission believes that the remaining aspects of the proposed rule change set forth in the Notice are either technical or non-substantive in nature, or are clarifications of the existing gap quote policy, and therefore are consistent with the Act. The Commission notes that the Exchange represented in the Notice that it has reasonable policies and procedures to surveil DMMs’ use of gap quotes and to detect the potential misuse of gap quotes in violation of Exchange rules and Federal securities laws. Such surveillance should provide the Exchange with information that will be helpful in assessing the effects of an increased number of gap quotes on the Exchange’s market. In light of the foregoing, the Commission finds that the proposed rule change is consistent with the Act and the rules and regulations thereunder. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,14 that the proposed rule change (SR–NYSEAmex– 2009–82) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–192 Filed 1–8–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–61279; File No. SR–ISE– 2009–110] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Options on the Brazilian Real January 4, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 22, 2009, the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘ISE’’) filed with the Securities and Exchange Commission the proposed rule change as described in Items I, II, and III below, which items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The ISE proposes to change the modifier for the Brazilian real. 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 these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements. 15 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 13 15 U.S.C. 78k–1(a)(1). 14 15 U.S.C. 78s(b)(2). VerDate Nov<24>2008 16:06 Jan 08, 2010 1 15 Jkt 220001 PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 1441 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Pursuant to Commission approval, ISE began trading options on foreign currency pairs on April 17, 2007.3 The Brazilian real is one of the 19 underlying currencies that have been approved by the SEC for trading.4 The purpose of this proposed rule change is to allow the Exchange to use a different modifier for calculating the underlying value of the Brazilian real than the one that was originally assigned. In the FX Options Filing, the Exchange had assigned modifiers of 1, 10 or 100 to calculate the underlying values for each of the 19 underlying currencies,5 with the Brazilian real being assigned a modifier of 10 based on the exchange rate at that time. Since then, however, the U.S. dollar has declined considerably relative to the Brazilian real. As a result, the Exchange believes a modifier of 100 would be more appropriate. ISE does not currently list options on the Brazilian real but expects to do so shortly. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ‘‘Act’’) and the rules and regulations under the Act applicable to a national securities exchange and, in particular, the requirements of Section 6(b) of the Act.6 Specifically, the Exchange believes the proposed rule change is consistent with Section 6(b)(5) of the Act’s 7 requirements that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and, in general, to protect investors and the public interest. B. Self-Regulatory Organization’s Statement on Burden on Competition The proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. 3 See Securities Exchange Act Release No. 55575 (April 3, 2007), 72 FR 17963 (April 10, 2007) (SR– ISE–2006–59) (the ‘‘FX Options Filing’’). 4 Id. 5 See Exhibit 3 of the FX Options Filing. Modifiers used for creating underlying values are also posted on the Exchange’s Web site. 6 15 U.S.C. 78f(b). 7 15 U.S.C. 78f(b)(5). E:\FR\FM\11JAN1.SGM 11JAN1

Agencies

[Federal Register Volume 75, Number 6 (Monday, January 11, 2010)]
[Notices]
[Pages 1439-1441]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-192]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61276; File No. SR-NYSEAmex-2009-82]


Self-Regulatory Organizations; NYSE Amex LLC; Order Approving a 
Proposed Rule Change Rescinding NYSE Information Memoranda 04-27 and 
07-66 and Issuing a New Information Memo Concerning the Exchange's Gap 
Quote Policy

January 4, 2010.

I. Introduction

    On November 9, 2009, the NYSE Amex LLC (``NYSEAmex'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to rescind NYSE Information Memoranda 04-27 and 
07-66 and issue a new Information Memo that provides updated parameters 
for, and guidance on the application of, the Exchange's Gap Quote 
Policy (the ``Policy''). In order to ensure an orderly transition to 
usage of the new parameters, the Exchange has proposed that these 
changes be made operative ten business days after the date of this 
order. The proposed rule change was published for comment in the 
Federal Register on December 1, 2009.\3\ The Commission received no 
comment letters on the proposal. This order approves the proposed rule 
change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 61049 (November 23, 
2009), 74 FR 62851 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal \4\
---------------------------------------------------------------------------

    \4\ For a full description of the proposal, including an 
overview of the history of the Policy and a detailed description of 
the current terms of the Policy, see id.
---------------------------------------------------------------------------

    The purpose of the Policy is to provide public notice of order 
imbalances for securities, facilitate price discovery, and minimize 
short-term price dislocation, by allowing for the entry of offsetting 
orders or the cancellation of orders on the side of an imbalance.

[[Page 1440]]

    An order imbalance may occur when the Exchange receives a sudden 
influx of orders for a particular security on the same side of the 
market within a short time interval, or when one or more large-size 
orders for a security are entered, and there is insufficient offsetting 
interest. When an imbalance exists that the Designated Market Maker 
(``DMM'') determines would cause a significant price dislocation, the 
Policy provides that the DMM should widen the spread between the bid 
and offer--a process known as ``gapping the quote.'' The use of a gap 
quote signals the existence of the imbalance to the market in order to 
attract contra-side liquidity and mitigate volatility.
    The proposed Information Memo includes a summary of the options 
available to a DMM when publishing a gap quote. In this situation, a 
DMM may: (1) Trade out of the gap quote by executing contra side 
interest against the imbalance (allowing for any cancellations); (2) 
update the gap quote, in consultation with a senior-level Floor 
Official; or (3) request an order imbalance trading halt in the 
security at issue, in consultation with a senior-level Floor Official.
    Under the proposal, the volume requirement for implementing a gap 
quote would be reduced from at least 10,000 shares to at least 5,000 
shares, and the value requirement for implementing a gap quote would be 
reduced from $200,000 or more to $100,000 or more. If either 
requirement is met, the DMM may implement a gap quote if it determines 
the imbalance would cause a significant price dislocation. In addition, 
the Exchange has proposed to clarify the factors DMMs consider when 
setting the price of the gap quote. Finally, the Exchange has proposed 
to clarify certain aspects of the Policy and make other technical or 
non-substantive changes.

A. Reduced Minimum Size and Value Requirements

    The Exchange has proposed to reduce the minimum size and value 
requirements for the use of a gap quote under the Policy to at least 
5,000 shares or a market value of $100,000 or more. The Exchange 
believes that these lower thresholds better reflect current market 
conditions. In addition to reducing the quantitative requirements for 
implementing a gap quote, the Exchange has proposed to add language 
clarifying that, notwithstanding meeting the minimum size or value 
requirement, an imbalance must also be anticipated to cause a 
significant price dislocation in the stock at issue in order to justify 
a gap quote. The Exchange believes it is important to emphasize that 
whether a gap quote is appropriate depends on the characteristics of a 
security as much as on the Policy's minimum requirements.

B. Setting the Price of the Gap Quote

    The current Information Memo instructs DMMs to set the price of a 
gap quote ``at the price at which the DMM believes the stock would 
trade if no contra side interest developed or no cancellations 
occurred[.]'' The Exchange has instead proposed that the DMM should 
publish the gap quote at the price where the DMM ``reasonably 
anticipates'' the stock would trade if no contra side interest 
developed or no cancellations occurred, which the Exchange believes 
helps clarify the guidance.
    The Exchange has also proposed to clarify that the Policy still 
requires a DMM to take into account, ``to the extent known,'' 
executable orders, e-Quotes and verbal interest in the Crowd (on the 
side of the market opposite the imbalance) at prices better than the 
price set by the DMM as the side of the gap quote opposite the 
imbalance when making his or her pricing determination. If the 
imbalance is known to be limited as to price, the DMM should not set 
the gap quote higher than that limit price.
    The Exchange also has proposed to add a provision reminding the 
DMMs that, at the time they publish a gap quote, they should set the 
price of the gap quote such that it is likely to result in a trade of 
at least the minimum size of 5,000 shares or $100,000 in value, thus 
clearing all, or a substantial portion of, the imbalance.

C. Other Clarifications and Technical or Non-Substantive Changes

    The Exchange has also proposed several additional changes. A 
complete list of these changes is set forth in the Notice.\5\ Among 
these changes are the following:
---------------------------------------------------------------------------

    \5\ See id. at 62853-54.
---------------------------------------------------------------------------

     The Exchange has proposed to add language to the 
Information Memo clarifying the DMM's responsibilities when 
implementing a gap quote. DMMs must balance the need for accurate price 
discovery with the need to attract contra side interest and trade out 
of the gap quote as soon as possible. In doing so, the DMM should, in 
consultation with a senior-level Floor Official, consider updating the 
gap quote after initial publication if doing so is necessary to attract 
sufficient contra side interest.
     The Exchange has proposed to add language reminding 
members and member organizations that the gap quote procedures may not 
be initiated after trading has closed. Instead, where there is a 
significant imbalance in a security at the close of trading, members 
and member organizations should use the procedures provided under NYSE 
Amex Equities Rule 123C(8) when attempting to mitigate the imbalance.
     The Information Memo currently includes an example 
illustrating implementation of a gap quote following an influx of 
orders from the Floor. The Exchange has proposed to add an example to 
the Information Memo which illustrates how the Policy works when the 
imbalance results in a liquidity replenishment point being reached.\6\
---------------------------------------------------------------------------

    \6\ See NYSE Amex Equities Rule 1000(a)(iv).
---------------------------------------------------------------------------

     Finally, because DMMs no longer act as agent for orders on 
the Display Book under the rules of the Exchange's New Market Model,\7\ 
the proposed Information Memo would clarify that a DMM who fails to 
follow the Policy would not be in violation the Order Display rule \8\ 
and/or the Firm Quote rule \9\ under Regulation NMS, but could be 
liable under NYSE Amex Equities Rules for a failure to maintain a fair 
and orderly market or a failure to observe high standards of commercial 
honor and just and equitable principles of trade.\10\
---------------------------------------------------------------------------

    \7\ In October 2008, the Commission approved The New York Stock 
Exchange's proposal to eliminate specialists and introduce DMMs. See 
Securities Exchange Act Release No. 58845 (October 24, 2008), 73 FR 
64379 (October 29, 2008) (SR-NYSE-2008-46). NYSE Amex adopted NYSE's 
trading rules, including the rules regarding DMMs and the New Market 
Model, in November 2008. See Securities Exchange Act Release No. 
59022 (November 26, 2008), 73 FR 73683 (December 3, 2008) (SR-
NYSEALTR-2008-10).
    \8\ See 17 CFR 242.604.
    \9\ See 17 CFR 242.602.
    \10\ See NYSE Amex Equities Rules 104(a), 104(f) and 2010.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\11\ In 
particular, it is consistent with Section 6(b)(5) of the Act,\12\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to promote just and equitable principles of trade, 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest. The proposed rule

[[Page 1441]]

change also supports the principles of Section 11A(a)(1) \13\ of the 
Act in that it seeks to ensure the economically efficient execution of 
securities transactions and fair competition among brokers and dealers 
and among exchange markets.
---------------------------------------------------------------------------

    \11\ 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).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

    The Exchange stated in the proposal that it believes the current 
volume and value requirements are too high in light of current market 
conditions. Recent trends in market activity have driven down both 
average trade sizes and average stock prices. As a result, the current 
volume and value requirements are met less frequently than they once 
were, and there are fewer occasions on which a DMM may use gap quotes 
to facilitate price discovery and minimize short-term price 
dislocation. The Exchange stated in its proposal that, based on its 
analysis of historical market conditions, the proposal to lower the gap 
quote volume and value requirements will permit an increased use of gap 
quotes, which it believed would be appropriate for current market 
conditions. In addition, the Exchange did not believe that lowering the 
requirements would cause an increase in the use of gap quotes to such a 
degree that would negatively impact the quality of the Exchange's 
market. The revised volume and value requirements should provide 
greater transparency and efficiency and additional reductions in 
volatility, consistent with the purpose of the Policy.
    The Commission believes that the remaining aspects of the proposed 
rule change set forth in the Notice are either technical or non-
substantive in nature, or are clarifications of the existing gap quote 
policy, and therefore are consistent with the Act.
    The Commission notes that the Exchange represented in the Notice 
that it has reasonable policies and procedures to surveil DMMs' use of 
gap quotes and to detect the potential misuse of gap quotes in 
violation of Exchange rules and Federal securities laws. Such 
surveillance should provide the Exchange with information that will be 
helpful in assessing the effects of an increased number of gap quotes 
on the Exchange's market.
    In light of the foregoing, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NYSEAmex-2009-82) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(2).
    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-192 Filed 1-8-10; 8:45 am]
BILLING CODE 8011-01-P
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