Self-Regulatory Organizations; National Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Rules on Self Trade Prevention Order Modifiers, 16540-16543 [2010-7364]

Download as PDF 16540 Federal Register / Vol. 75, No. 62 / Thursday, April 1, 2010 / Notices 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 No. SR–NYSE–2010–22 on the subject line. Paper Comments mstockstill on DSKH9S0YB1PROD with NOTICES • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–7365 Filed 3–31–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–61781; File No. SR–NSX– 2010–02] Self-Regulatory Organizations; National Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Rules on Self Trade Prevention Order Modifiers March 25, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 All submissions should refer to File notice is hereby given that, on March Number SR–NYSE–2010–22. This file 23, 2010, National Stock Exchange, Inc. number should be included on the (‘‘NSX’’ or the ‘‘Exchange’’) filed with the subject line if e-mail is used. To help the Securities and Exchange Commission Commission process and review your (the ‘‘Commission’’) the proposed rule comments more efficiently, please use change as described in Items I, II, and only one method. The Commission will III below, which Items have been post all comments on the Commission’s substantially prepared by the selfInternet Web site (https://www.sec.gov/ regulatory organization. The Exchange rules/sro.shtml). Copies of the filed the proposal as a ‘‘nonsubmission, all subsequent controversial’’ proposed rule change amendments, all written statements pursuant to Section 19(b)(3)(A)(iii) of with respect to the proposed rule the Act 3 and Rule 19b-4(f)(6) change that are filed with the thereunder.4 The Commission is Commission, and all written publishing this notice to solicit communications relating to the comments on the proposed rule change proposed rule change between the from interested persons. Commission and any person, other than I. Self-Regulatory Organization’s those that may be withheld from the Statement of the Terms of Substance of public in accordance with the the Proposed Rule Change provisions of 5 U.S.C. 552, will be available for Web site viewing and The Exchange proposes to adopt a printing in the Commission’s Public new Rule 11.11(c)(1) ‘‘Self Trade Reference Room, 100 F Street, NE., Prevention’’ Order Modifier that allows Washington, DC 20549, on official an ETP Holder to submit orders that business days between the hours of 10 may avoid trading against other orders a.m. and 3 p.m. Copies of such filing of the same ETP Holder. also will be available for inspection and The text of the proposed rule change copying at the principal office of the is available on the Exchange’s Web site Exchange. All comments received will at https://www.nsx.com, on the be posted without change; the Commission’s Web site at https:// Commission does not edit personal www.sec.gov, at NSX, and at the identifying information from Commission’s Public Reference Room. submissions. You should submit only information that you wish to make 7 17 CFR 200.30–3(a)(12). available publicly. All submissions 1 15 U.S.C.78s(b)(1). should refer to File Number SR–NYSE– 2 17 CFR 240.19b–4. 2010–22 and should be submitted on or 3 15 U.S.C. 78s(b)(3)(A)(iii). before April 22, 2010. 4 17 VerDate Nov<24>2008 16:51 Mar 31, 2010 Jkt 220001 PO 00000 CFR 240.19b–4(f)(6). Frm 00119 Fmt 4703 Sfmt 4703 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 adopt a new Rule 11.11(c)(1) to make available to ETP Holders an order modifier that allows an ETP Holder to submit orders that may avoid trading against other orders of the same ETP Holder. The proposed changes are more fully discussed below. Background The proposed ‘‘Self Trade Prevention’’ (‘‘STP’’) modifiers are instructions designed to prevent two orders with the same designated Unique Identifier (as defined below) from executing against each other. The ETP Holder elects at the time an STP modified order is submitted whether the new order, an existing order (which must also have been submitted with an STP modifier) or both orders will be cancelled (or rejected, as applicable) instead of otherwise interacting. The Exchange proposes adding three STP modifiers that will be implemented and can be set at one of three identification levels: the market participant level (pursuant to the ‘‘MPID’’), the FIX session level (pursuant to ‘‘FIX Session ID’’) or an ETP Holder’s user level (pursuant to the ‘‘Party ID’’) (any such identifier, a ‘‘Unique Identifier’’).5 The STP instruction on the incoming order controls the interaction between two orders marked with STP modifiers from the same Unique Identifier. The three new STP modifiers are discussed more thoroughly below. 5 Each ETP Holder is issued a unique MPID identifier that allows the Exchange to determine the ETP Holder for each order and/or execution. The FIX Session ID is unique to each physical connection between the Exchange and an ETP Holder. The Party ID identifies a unique user of an ETP Holder. E:\FR\FM\01APN1.SGM 01APN1 Federal Register / Vol. 75, No. 62 / Thursday, April 1, 2010 / Notices STP Reject Newest (‘‘STPN’’) An incoming order marked with the STPN modifier will not execute against opposite side resting interest marked with any STP modifier originating from the same Unique Identifier. The incoming order marked with the STPN modifier will be rejected. The resting order marked with an STP modifier, which otherwise would have interacted with the incoming order from the same Unique Identifier, will remain on the NSX Book. STPN Example 1: An order to buy 500 shares @ $22.00 is marked with any of the three STP modifiers and becomes a resting order on the NSX Book. Subsequently, an order to sell 500 shares @ $22.00 is entered with the same designated Unique Identifier and marked with the STPN modifier. STPN Result 1: The incoming sell order for 500 shares @ $22.00 marked with the STPN modifier is rejected. The resting buy order for 500 shares at $22.00 marked with one of the three STP modifiers remains on the NSX Book. STPN Example 2: An order to buy 500 shares @ $22.00 is marked with any of the three STP modifiers and becomes a resting order on the NSX Book. Subsequently, an order to sell 700 shares @ $22.00 is entered with the same Unique Identifier and marked with the STPN modifier. STPN Result 2: The incoming sell order for 700 shares @ $22.00 marked with the STPN modifier is rejected. The resting buy order for 500 shares at $22.00 marked with one of the three STP modifiers remains on the NSX Book. STPN Example 3: An order to buy 500 shares @ $22.00 is marked with any of the three STP modifiers and becomes a resting order on the NSX Book. Subsequently, an order to sell 400 shares @ $22.00 is entered with the same Unique Identifier and marked with the STPN modifier. STPN Result 3: The incoming sell order for 400 shares @ $22.00 marked with the STPN modifier is rejected. The resting buy order for 500 shares at $22.00 marked with one of the three STP modifiers remains on the NSX Book. mstockstill on DSKH9S0YB1PROD with NOTICES STP Cancel Oldest (‘‘STPO’’) An incoming order marked with the STPO modifier will not execute against opposite side resting interest marked with any STP modifier originating from the same Unique Identifier. The resting order marked with the STP modifier, which otherwise would have interacted with the incoming order by the same VerDate Nov<24>2008 16:51 Mar 31, 2010 Jkt 220001 Unique Identifier, will be cancelled. The incoming order marked with the STPO modifier will remain on the NSX Book. STPO Example 1: An order to buy 500 shares @ $22.00 is marked with any of the three STP modifiers and becomes a resting order in the NSX Book. Subsequently, an order to sell 500 shares @ $22.00 is entered with the same Unique Identifier and marked with the STPO modifier. STPO Result 1: The resting buy order for 500 shares at $22.00 marked with one of the three STP modifiers is cancelled. The incoming sell order for 500 shares @ $22.00 marked with the STPO modifier is entered in the NSX Book. STPO Example 2: An order to buy 500 shares @ $22.00 is marked with any of the three STP modifiers and becomes a resting order in the NSX Book. Subsequently, an order to sell 700 shares @ $22.00 is entered with the same Unique Identifier and marked with the STPO modifier. STPO Result 2: The resting buy order for 500 shares at $22.00 marked with one of the three STP modifiers is cancelled. The incoming sell order for 700 shares @ $22.00 marked with the STPO modifier is entered on the NSX Book. STPO Example 3: An order to buy 500 shares @ $22.00 is marked with any of the three STP modifiers and becomes a resting order in the NSX Book. Subsequently, an order to sell 400 shares @ $22.00 is entered with the same Unique Identifier and marked with the STPO modifier. STPO Result 3: The resting buy order for 500 shares at $22.00 marked with one of the three STP modifiers is cancelled. The incoming sell order for 400 shares @ $22.00 marked with the STPO modifier is entered on the NSX Book. STP Cancel Both (‘‘STPB’’) An incoming order marked with the STPB modifier will not execute against opposite side resting interest marked with any STP modifier originating from the same Unique Identifier. The entire size of both orders will be rejected or cancelled, as applicable. STPB Example 1: An order to buy 500 shares @ $22.00 is marked with any of the three STP modifiers and becomes a resting order in the NSX Book. Subsequently, an order to sell 500 shares @ $22.00 is entered with the same Unique Identifier and marked with the STPB modifier. STPB Result 1: The resting buy order for 500 shares at $22.00 marked with one of the three STP modifiers is cancelled. The incoming sell order for PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 16541 500 shares @ $22.00 marked with the STPB modifier is rejected. STPB Example 2: An order to buy 500 shares @ $22.00 is marked with any of the three STP modifiers and becomes a resting order in the NSX Book. Subsequently, an order to sell 700 shares @ $22.00 is entered with the same Unique Identifier and marked with the STPB modifier. STPB Result 2: The resting buy order for 500 shares at $22.00 marked with one of the three STP modifiers is cancelled. The incoming order to sell 700 shares @ $22.00 marked with the STPB modifier is rejected. STPB Example 3: An order to buy 500 shares @ $22.00 is marked with any of the three STP modifiers and becomes a resting order in the NSX Book. Subsequently, an order to sell 400 shares @ $22.00 is entered with the same Unique Identifier and marked with the STPB modifier. STPB Result 3: The resting buy order for 500 shares at $22.00 marked with one of the three STP modifiers is cancelled. The incoming order to sell 400 shares @ $22.00 marked with the STPB modifier is rejected. Additional Discussion STP modifiers are intended to prevent interaction between the same Unique Identifier. STP modifiers must be present on both the buy and the sell order in order to prevent a trade from occurring and to effect a cancel and/or reject instruction. An incoming STP order cannot interact through resting orders that have price and/or time priority. When an order with an STP modifier is entered it will first interact with all available interest in accordance with the execution process described in Exchange Rules 11.14 and 11.15. If there is a remaining balance on the order after trading with all orders with higher priority, it may then interact with an opposite side STP order in accordance with the rules established above. STP modifiers are available for orders entered in either an agency or principal capacity. An incoming STP modified Post Only order that is immediately marketable against a resting STP modified order of the same Unique Identifier will not be rejected upon entry; rather, the order will be accepted and processed according to the STP instructions.6 STP orders that are not 6 Without STP modifiers of the same Unique Identifier, an incoming marketable Post Only order would be rejected so as to prevent a locked market pursuant to NSX Rule 11.11(c)(5)(A). The incoming STP modified Post Only order is processed because, pursuant to the STP instruction, one or both of the E:\FR\FM\01APN1.SGM Continued 01APN1 16542 Federal Register / Vol. 75, No. 62 / Thursday, April 1, 2010 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES populated correctly will not reject, but will process according to the underlying order behavior. Zero Display Reserve Orders submitted with an STP modifier will be rejected. The Exchange believes that adding this functionality will allow ETP Holders to better manage order flow and prevent undesirable executions with themselves or the potential for (or the appearance of) ‘‘wash sales’’ that may occur as a result of the velocity of trading in today’s high speed marketplace. Many ETP Holders have multiple connections into the Exchange due to capacity and speed related demands. Orders routed by the same ETP Holder via different connections or in different capacities may, in certain circumstances, trade against each other. The new STP modifiers provide ETP Holders the opportunity to prevent these potentially undesirable trades occurring under the same Unique Identifier on both the buy and sell side of the execution. The Exchange notes that the STP modifiers do not alleviate, or otherwise exempt, broker-dealers from their best execution obligations. Broker-dealers using the STP modifiers on agency orders will be obligated to execute those agency orders at the same price, or a better price than they would have received had the orders been executed on the Exchange. Finally, the Exchange notes that offering the STP modifiers will streamline certain regulatory functions by reducing inadvertent selftrade executions that would otherwise be captured by Exchange generated wash trading surveillance reports when orders are executed under the same Unique Identifier. The Exchange has developed a surveillance program to identify the use of the STP modifier on agency orders and to surveil such orders for potential misuse. For these reasons, the Exchange believes the STP modifiers offer ETP Holders enhanced order processing functionality that may prevent potentially undesirable executions without negatively impacting broker-dealer best execution obligations. Effective Date The Exchange requests that the effective date for the instant rule change be thirty days after the date of filing of this rule change, or such earlier date as the Commission determines. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with orders will be cancelled and/or rejected, as applicable. VerDate Nov<24>2008 16:51 Mar 31, 2010 Jkt 220001 the provisions of Section 6(b) of the Act,7 in general, and furthers the objectives of Section 6(b)(5) 8 in particular in that it is designed, among other things, 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 advances these objectives by making available to ETP Holders a type of order modifier that is in use within the national market system 9 and by allowing firms to better manage order flow and prevent undesirable executions against themselves. 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 The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing rule 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 if consistent with the protection of investors and the public interest, provided that the selfregulatory organization has given 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,10 the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 11 and 7 15 U.S.C. 78f(b). U.S.C. 78f(b)(4). 9 See Securities Exchange Act Release No. 60266 (July 9, 2009), 74 FR 34380 (July 9, 2009) (SR– BATS–2009–022) (approving on an expedited basis a ‘‘Member Match Trade Prevention’’ order type pursuant to proposed BATS Rule 11.9(f)). 10 As required under Rule 19b–4(f)(6)(iii), NSX provided the Commission with written notice of its intent to file the proposed rule change at least five business days prior to the filing date. 11 15 U.S.C. 78s(b)(3)(A). 8 15 PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 Rule 19b-4(f)(6) thereunder.12 At any time within 60 days of the filing of such 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. 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–NSX–2010–02 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-NSX–2010–02. 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 Web site viewing and printing 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 12 17 E:\FR\FM\01APN1.SGM CFR 240.19b–4(f)(6). 01APN1 Federal Register / Vol. 75, No. 62 / Thursday, April 1, 2010 / Notices identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NSX– 2010–02 and should be submitted on or before April 22, 2010. 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 aspects of such statements. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Florence E. Harmon, Deputy Secretary. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2010–7364 Filed 3–31–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–61788; File No. SR– NYSEAmex–2010–07] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NYSE Amex, LLC Amending Its Fee Schedule March 26, 2010. 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 January 28, 2010, NYSE Amex LLC (‘‘NYSE Amex’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. mstockstill on DSKH9S0YB1PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Schedule of Fees and Charges (the ‘‘Schedule’’) effective February 1, 2010. The text of the proposed rule change is attached as Exhibit 5 to the 19b–4 form. A copy of this filing is available on the Exchange’s Web site at https:// www.nyse.com, at the Exchange’s principal office and at the Commission’s Public Reference Room. 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 13 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Nov<24>2008 16:51 Mar 31, 2010 Jkt 220001 1. Purpose NYSE Amex proposes a new passthrough Routing Surcharge designed to recover routing, clearing and transaction fees for the execution of orders routed to away exchanges. The Exchange will not assess a Routing Surcharge on Customer orders that do not incur a transaction charge at the away exchange. The Exchange currently routes all orders that are marketable at the National Best Bid/Offer (‘‘NBBO’’), but not executable on NYSE Amex, immediately upon receipt, to the away market(s) at the NBBO. For any order executed as a result of routing out, the Exchange currently charges fees in the same manner as if the execution occurred on the Exchange. In the case of Customer orders, the Exchange charges no transaction fee for the execution, despite incurring costs that include clearing charges, routing charges, and in some instances transaction fees. In recent months, particularly with the replacement of the old Intermarket Options Linkage Plan and the expansion of the Penny Pilot Program, the Exchange is experiencing a rise in the number of contracts that route out, with a related rise in costs incurred for routing such orders.3 Effective February 1, 2010 NYSE Amex will introduce a new Routing Surcharge in order to pass through routing, clearing and transaction charges associated with orders routed to away markets. The Routing Surcharge will be assessed on all non-customer orders routed to away markets and on Customer orders that are charged transaction fees at the executing exchange. If the executing exchange does not charge a transaction fee for the execution of the Customer order, the Routing Surcharge will not be assessed. The Exchange believes these fees are reasonable and represent pass through charges incurred by the Exchange for routing orders to away markets and the 3 This paragraph and the following paragraph were revised via an e-mail sent from Matthew Vaughn, Counsel Director of Compliance, NYSE Amex LLC, to Leah Mesfin, Special Counsel, Division of Trading and Markets, Commission, on February 22, 2010. PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 16543 cost borne by the Exchange of developing, operating and maintaining smart order routing technology. Customer orders that are not charged an execution fee at the away market will not be charged the Routing Surcharge because in those instances the Exchange is not charged a fee by its routing broker. The Routing Surcharge will be made up of (i) $0.11 per contract, and (ii) all actual charges assessed by the away exchange(s) (calculated on an order-by-order basis since different away exchanges charge different amounts). The Routing Surcharge is in addition to NYSE Amex’s customary execution fees applicable to the order. This fee structure is consistent with a similar fee charged by the CBOE. The Exchange also proposes to change the Broker Dealer & Firm Electronic fee to $0.30 per contract (currently $0.15 per contract). In making this rate change the Exchange seeks to remain competitive with other markets that often charge a higher rate. In proposing this new rate, NYSE Amex also seeks to adopt industry practice which sets the electronic broker dealer rate at a level slightly higher than the manual broker dealer charge. The pricing convention sets a small premium on the electronic broker dealer rate while still providing savings to the trading participant who would otherwise have to pay brokerage fees to a floor broker if it chose to access our markets through a manual execution. The Exchange further notes that this fee was reduced from $0.45 to its current level in June 2009. Finally, the Exchange’s Cancellation Fee is currently waived until February 1, 2010. Beginning February 1, 2010 the Exchange will begin charging the Cancellation Fee and proposes to remove language from the Schedule referencing the waiver. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Securities Exchange Act of 1934 (the ‘‘Act’’),4 in general, and Section 6(b)(4) of the Act,5 in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among its members and other persons using its facilities. The proposed fees are reasonable and apply equally to all ATP Holders. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose 4 15 5 15 E:\FR\FM\01APN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(4). 01APN1

Agencies

[Federal Register Volume 75, Number 62 (Thursday, April 1, 2010)]
[Notices]
[Pages 16540-16543]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-7364]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61781; File No. SR-NSX-2010-02]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Adopt Rules on Self Trade Prevention Order Modifiers

March 25, 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 March 23, 2010, National Stock Exchange, Inc. (``NSX'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by the 
self-regulatory organization. The Exchange filed the proposal as a 
``non-controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt a new Rule 11.11(c)(1) ``Self Trade 
Prevention'' Order Modifier that allows an ETP Holder to submit orders 
that may avoid trading against other orders of the same ETP Holder.
    The text of the proposed rule change is available on the Exchange's 
Web site at https://www.nsx.com, on the Commission's Web site at https://www.sec.gov, at NSX, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Exchange proposes to adopt a new Rule 11.11(c)(1) to make 
available to ETP Holders an order modifier that allows an ETP Holder to 
submit orders that may avoid trading against other orders of the same 
ETP Holder. The proposed changes are more fully discussed below.

Background

    The proposed ``Self Trade Prevention'' (``STP'') modifiers are 
instructions designed to prevent two orders with the same designated 
Unique Identifier (as defined below) from executing against each other. 
The ETP Holder elects at the time an STP modified order is submitted 
whether the new order, an existing order (which must also have been 
submitted with an STP modifier) or both orders will be cancelled (or 
rejected, as applicable) instead of otherwise interacting.
    The Exchange proposes adding three STP modifiers that will be 
implemented and can be set at one of three identification levels: the 
market participant level (pursuant to the ``MPID''), the FIX session 
level (pursuant to ``FIX Session ID'') or an ETP Holder's user level 
(pursuant to the ``Party ID'') (any such identifier, a ``Unique 
Identifier'').\5\ The STP instruction on the incoming order controls 
the interaction between two orders marked with STP modifiers from the 
same Unique Identifier. The three new STP modifiers are discussed more 
thoroughly below.
---------------------------------------------------------------------------

    \5\ Each ETP Holder is issued a unique MPID identifier that 
allows the Exchange to determine the ETP Holder for each order and/
or execution. The FIX Session ID is unique to each physical 
connection between the Exchange and an ETP Holder. The Party ID 
identifies a unique user of an ETP Holder.

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[[Page 16541]]

STP Reject Newest (``STPN'')

    An incoming order marked with the STPN modifier will not execute 
against opposite side resting interest marked with any STP modifier 
originating from the same Unique Identifier. The incoming order marked 
with the STPN modifier will be rejected. The resting order marked with 
an STP modifier, which otherwise would have interacted with the 
incoming order from the same Unique Identifier, will remain on the NSX 
Book.
    STPN Example 1: An order to buy 500 shares @ $22.00 is marked with 
any of the three STP modifiers and becomes a resting order on the NSX 
Book. Subsequently, an order to sell 500 shares @ $22.00 is entered 
with the same designated Unique Identifier and marked with the STPN 
modifier.
    STPN Result 1: The incoming sell order for 500 shares @ $22.00 
marked with the STPN modifier is rejected. The resting buy order for 
500 shares at $22.00 marked with one of the three STP modifiers remains 
on the NSX Book.
    STPN Example 2: An order to buy 500 shares @ $22.00 is marked with 
any of the three STP modifiers and becomes a resting order on the NSX 
Book. Subsequently, an order to sell 700 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the STPN modifier.
    STPN Result 2: The incoming sell order for 700 shares @ $22.00 
marked with the STPN modifier is rejected. The resting buy order for 
500 shares at $22.00 marked with one of the three STP modifiers remains 
on the NSX Book.
    STPN Example 3: An order to buy 500 shares @ $22.00 is marked with 
any of the three STP modifiers and becomes a resting order on the NSX 
Book. Subsequently, an order to sell 400 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the STPN modifier.
    STPN Result 3: The incoming sell order for 400 shares @ $22.00 
marked with the STPN modifier is rejected. The resting buy order for 
500 shares at $22.00 marked with one of the three STP modifiers remains 
on the NSX Book.

STP Cancel Oldest (``STPO'')

    An incoming order marked with the STPO modifier will not execute 
against opposite side resting interest marked with any STP modifier 
originating from the same Unique Identifier. The resting order marked 
with the STP modifier, which otherwise would have interacted with the 
incoming order by the same Unique Identifier, will be cancelled. The 
incoming order marked with the STPO modifier will remain on the NSX 
Book.
    STPO Example 1: An order to buy 500 shares @ $22.00 is marked with 
any of the three STP modifiers and becomes a resting order in the NSX 
Book. Subsequently, an order to sell 500 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the STPO modifier.
    STPO Result 1: The resting buy order for 500 shares at $22.00 
marked with one of the three STP modifiers is cancelled. The incoming 
sell order for 500 shares @ $22.00 marked with the STPO modifier is 
entered in the NSX Book.
    STPO Example 2: An order to buy 500 shares @ $22.00 is marked with 
any of the three STP modifiers and becomes a resting order in the NSX 
Book. Subsequently, an order to sell 700 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the STPO modifier.
    STPO Result 2: The resting buy order for 500 shares at $22.00 
marked with one of the three STP modifiers is cancelled. The incoming 
sell order for 700 shares @ $22.00 marked with the STPO modifier is 
entered on the NSX Book.
    STPO Example 3: An order to buy 500 shares @ $22.00 is marked with 
any of the three STP modifiers and becomes a resting order in the NSX 
Book. Subsequently, an order to sell 400 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the STPO modifier.
    STPO Result 3: The resting buy order for 500 shares at $22.00 
marked with one of the three STP modifiers is cancelled. The incoming 
sell order for 400 shares @ $22.00 marked with the STPO modifier is 
entered on the NSX Book.

STP Cancel Both (``STPB'')

    An incoming order marked with the STPB modifier will not execute 
against opposite side resting interest marked with any STP modifier 
originating from the same Unique Identifier. The entire size of both 
orders will be rejected or cancelled, as applicable.
    STPB Example 1: An order to buy 500 shares @ $22.00 is marked with 
any of the three STP modifiers and becomes a resting order in the NSX 
Book. Subsequently, an order to sell 500 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the STPB modifier.
    STPB Result 1: The resting buy order for 500 shares at $22.00 
marked with one of the three STP modifiers is cancelled. The incoming 
sell order for 500 shares @ $22.00 marked with the STPB modifier is 
rejected.
    STPB Example 2: An order to buy 500 shares @ $22.00 is marked with 
any of the three STP modifiers and becomes a resting order in the NSX 
Book. Subsequently, an order to sell 700 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the STPB modifier.
    STPB Result 2: The resting buy order for 500 shares at $22.00 
marked with one of the three STP modifiers is cancelled. The incoming 
order to sell 700 shares @ $22.00 marked with the STPB modifier is 
rejected.
    STPB Example 3: An order to buy 500 shares @ $22.00 is marked with 
any of the three STP modifiers and becomes a resting order in the NSX 
Book. Subsequently, an order to sell 400 shares @ $22.00 is entered 
with the same Unique Identifier and marked with the STPB modifier.
    STPB Result 3: The resting buy order for 500 shares at $22.00 
marked with one of the three STP modifiers is cancelled. The incoming 
order to sell 400 shares @ $22.00 marked with the STPB modifier is 
rejected.

Additional Discussion

    STP modifiers are intended to prevent interaction between the same 
Unique Identifier. STP modifiers must be present on both the buy and 
the sell order in order to prevent a trade from occurring and to effect 
a cancel and/or reject instruction.
    An incoming STP order cannot interact through resting orders that 
have price and/or time priority. When an order with an STP modifier is 
entered it will first interact with all available interest in 
accordance with the execution process described in Exchange Rules 11.14 
and 11.15. If there is a remaining balance on the order after trading 
with all orders with higher priority, it may then interact with an 
opposite side STP order in accordance with the rules established above.
    STP modifiers are available for orders entered in either an agency 
or principal capacity. An incoming STP modified Post Only order that is 
immediately marketable against a resting STP modified order of the same 
Unique Identifier will not be rejected upon entry; rather, the order 
will be accepted and processed according to the STP instructions.\6\ 
STP orders that are not

[[Page 16542]]

populated correctly will not reject, but will process according to the 
underlying order behavior. Zero Display Reserve Orders submitted with 
an STP modifier will be rejected.
---------------------------------------------------------------------------

    \6\ Without STP modifiers of the same Unique Identifier, an 
incoming marketable Post Only order would be rejected so as to 
prevent a locked market pursuant to NSX Rule 11.11(c)(5)(A). The 
incoming STP modified Post Only order is processed because, pursuant 
to the STP instruction, one or both of the orders will be cancelled 
and/or rejected, as applicable.
---------------------------------------------------------------------------

    The Exchange believes that adding this functionality will allow ETP 
Holders to better manage order flow and prevent undesirable executions 
with themselves or the potential for (or the appearance of) ``wash 
sales'' that may occur as a result of the velocity of trading in 
today's high speed marketplace. Many ETP Holders have multiple 
connections into the Exchange due to capacity and speed related 
demands. Orders routed by the same ETP Holder via different connections 
or in different capacities may, in certain circumstances, trade against 
each other. The new STP modifiers provide ETP Holders the opportunity 
to prevent these potentially undesirable trades occurring under the 
same Unique Identifier on both the buy and sell side of the execution.
    The Exchange notes that the STP modifiers do not alleviate, or 
otherwise exempt, broker-dealers from their best execution obligations. 
Broker-dealers using the STP modifiers on agency orders will be 
obligated to execute those agency orders at the same price, or a better 
price than they would have received had the orders been executed on the 
Exchange. Finally, the Exchange notes that offering the STP modifiers 
will streamline certain regulatory functions by reducing inadvertent 
self-trade executions that would otherwise be captured by Exchange 
generated wash trading surveillance reports when orders are executed 
under the same Unique Identifier. The Exchange has developed a 
surveillance program to identify the use of the STP modifier on agency 
orders and to surveil such orders for potential misuse. For these 
reasons, the Exchange believes the STP modifiers offer ETP Holders 
enhanced order processing functionality that may prevent potentially 
undesirable executions without negatively impacting broker-dealer best 
execution obligations.

Effective Date

    The Exchange requests that the effective date for the instant rule 
change be thirty days after the date of filing of this rule change, or 
such earlier date as the Commission determines.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act,\7\ in general, and 
furthers the objectives of Section 6(b)(5) \8\ in particular in that it 
is designed, among other things, 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 advances these objectives by making available to ETP 
Holders a type of order modifier that is in use within the national 
market system \9\ and by allowing firms to better manage order flow and 
prevent undesirable executions against themselves.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
    \9\ See Securities Exchange Act Release No. 60266 (July 9, 
2009), 74 FR 34380 (July 9, 2009) (SR-BATS-2009-022) (approving on 
an expedited basis a ``Member Match Trade Prevention'' order type 
pursuant to proposed BATS Rule 11.9(f)).
---------------------------------------------------------------------------

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Because the foregoing rule 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 if consistent with the protection of investors 
and the public interest, provided that the self-regulatory organization 
has given 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,\10\ the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) 
thereunder.\12\ At any time within 60 days of the filing of such 
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.
---------------------------------------------------------------------------

    \10\ As required under Rule 19b-4(f)(6)(iii), NSX provided the 
Commission with written notice of its intent to file the proposed 
rule change at least five business days prior to the filing date.
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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-NSX-2010-02 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-NSX-2010-02. 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 Web site viewing and 
printing 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

[[Page 16543]]

identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NSX-2010-02 and should be submitted on 
or before April 22, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7364 Filed 3-31-10; 8:45 am]
BILLING CODE 8011-01-P
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