Self-Regulatory Organizations; NYSE Amex LLC; Order Granting Accelerated Approval of the Proposed Rule Change Relating to the Designation of a “Professional Customer”, 17457-17459 [2010-7753]

Download as PDF Federal Register / Vol. 75, No. 65 / Tuesday, April 6, 2010 / Notices II. Discussion After careful review, 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 association.8 In particular, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Act, 9 in that it is designed, among other things, to prevent fraudulent and manipulative acts and practices; to promote just and equitable principles of trade; to remove impediments to and perfect the mechanism of a free and open market and a national market system; and, in general, to protect investors and the public interest by eliminating a rule that contains terms that are not clearly defined and raises potential investor protection concerns. III. Conclusion For the foregoing reasons, the Commission finds that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities association. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,10 that the proposed rule change (SR–FINRA– 2010–010) be and hereby is approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–7695 Filed 4–5–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–61818; File No. SR– NYSEAmex–2010–18] Self-Regulatory Organizations; NYSE Amex LLC; Order Granting Accelerated Approval of the Proposed Rule Change Relating to the Designation of a ‘‘Professional Customer’’ March 31, 2010. sroberts on DSKD5P82C1PROD with NOTICES I. Introduction On February 25, 2010, the NYSE Amex LLC (‘‘NYSE Amex’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder 2 to designate any Customer 3 that places more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s) as a ‘‘Professional Customer.’’ The proposed rule change was published for comment in the Federal Register on March 9, 2010.4 The Commission did not receive any comments on the proposed rule change. This order approves the proposal on an accelerated basis. II. Description of NYSE Amex’s Proposal NYSE Amex proposes to adopt a new term, ‘‘Professional Customer,’’ which would be defined in NYSE Amex Rule 900.2NY(18A) as a person or entity that (i) is not a broker or dealer in securities, and (ii) places more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s). Under the proposal, a Professional Customer would be treated in the same manner as a broker or dealer in securities for purposes of certain execution rules of the Exchange. Specifically, the orders of a Professional Customer generally would be treated in the same manner as a broker-dealer in securities for the purposes of NYSE Amex Rules 900.3NY(j) (Facilitation Order), 904G(f) (FLEX Trading Procedures and Principles—Crossing Limitations), 934NY (Crossing), 934.1NY (Facilitation Cross Transactions), 934.2NY (At-Risk Cross Transactions), 934.3NY (Solicitation), 963NY (Priority and Order Allocation Procedures—Open Outcry), 963.1NY (Complex Order Transactions), 964NY (Display, Priority and Order Allocation—Trading Systems), 964.2NY(b)(1)(iii) (Participation Entitlement of Specialists and eSpecialists), 964.2NY(b)(3)(B) (Allocation of Participation Entitlement Amongst Specialist Pool), 980NY(b) (Electronic Complex Order Trading), Rule 995NY(b) (Prohibited Conduct— Limit Orders) and the Exchange’s schedule of fees. Under the proposal, a Professional Customer would participate in NYSE Amex’s allocation process on equal terms with broker-dealers—i.e., 1 15 8 In approving the proposed rule change, the Commission has considered the rule change’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 9 15 U.S.C. 78o–3(b)(6). 10 15 U.S.C. 78s(b)(2). 11 17 CFR 200.30–3(a)(12). VerDate Nov<24>2008 16:37 Apr 05, 2010 Jkt 220001 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Under NYSE Amex rules, ‘‘Customer’’ is defined as ‘‘an individual or organization that is not a Broker/Dealer.’’ See NYSE Amex Rule 900.2NY(18). 4 See Securities Exchange Act Release No. 61629 (March 2, 2010), 75 FR 10851 (March 9, 2010) (‘‘Notice’’). 2 17 PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 17457 Professional Customers would not receive priority over broker-dealers in the allocation of orders on the Exchange. The Exchange states that the proposal would not otherwise affect non-broker-dealer individuals or entities under NYSE Amex rules. All Customer orders, including non-broker-dealer orders included in the definition of ‘‘Professional Customers,’’ would continue to be treated equally for purposes of the Exchange’s rules concerning away market protection. The proposal requires ATP holders to indicate whether Customer orders are ‘‘Professional Customer’’ orders.5 To comply with this requirement, ATP holders would be required to review their customers’ activity on at least a quarterly basis to determine whether orders that are not for the account of a broker or dealer should be represented as Customer orders or Professional Customer orders.6 The Exchange states that it intends to file a separate proposed rule change to adopt fees for professional orders.7 III. Commission Findings and Order Granting Approval of the Proposed Rule Change Change After careful consideration of the proposed rule change, the Commission finds that the proposed rule change is consistent with the Act. Specifically, the Commission finds that the proposed rule change is consistent with Section 5 The Exchange intends to require firms to identify Professional Customer orders submitted electronically to the system by identifying them with the number ‘‘8’’ in the customer type field— a mandatory field required for order entry. Manual orders submitted outside the electronic system would be marked with an origin code of ‘‘PC.’’ These Professional Customer identifiers would also flow through Exchange systems into audit trail and trade reporting data. See Notice, supra note 4 at 10852. 6 Orders for any customer that had an average of more than 390 orders per day during any month of a calendar quarter must be represented as Professional Customer orders for the next calendar quarter. ATP Holders would be required to conduct a quarterly review and make any appropriate changes to the way in which they are representing orders within five business days after the end of each calendar quarter. While members only would be required to review their accounts on a quarterly basis, if during a quarter the Exchange identifies a customer for which orders are being represented as Customer orders but that has averaged more than 390 orders per day during a month, the Exchange would notify the ATP Holder and the ATP Holder would be required to change the manner in which it is representing the customer’s orders within five business days. The Exchange confirmed that references to ‘‘five days’’ in footnote 10 of the Notice should be read as ‘‘five business days.’’ E-mail from Matthew Vaughn, Counsel, NYSE Euronext to Ronesha Butler, Special Counsel, Division of Trading and Markets, dated March 31, 2010. 7 See Notice, supra note 4 at 10852. E:\FR\FM\06APN1.SGM 06APN1 17458 Federal Register / Vol. 75, No. 65 / Tuesday, April 6, 2010 / Notices 6(b) 8 of the Act and the rules thereunder,9 and in particular with: Section 6(b)(5) of the Act, which requires that the rules of a national securities exchange, among other things, be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest; and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers; 10 and Section 6(b)(8) of the Act, which requires the rules of an exchange not to impose any burden on competition not necessary or appropriate in furtherance of the Act.11 Under the proposed rule change, customers who place orders on the level of frequency specified in proposed NYSE Amex Rule 900.2NY(18A) would be deemed Professional Customers and would no longer receive the priority treatment currently granted to all public customers. The Commission has previously approved similar proposals to give the orders of certain customers, identified as ‘‘Professional Orders’’ 12 or ‘‘Professionals’’,13 no greater priority than that given to broker-dealer orders.14 Under the Professional Customer Approval Orders, the orders of public customers that are deemed Professional orders are no longer accorded the priority granted to the orders of all other public customers.15 While NYSE Amex Rule 900.2NY (18A) differs slightly from the rules adopted in the Professional Customer Approval Orders, the Commission believes that the Exchange’s proposed rule change is comparable to rules of the ISE, CBOE and Phlx, which the Commission found to be consistent with the Act. In the ISE Approval Order, the Commission reviewed the background and history of customer order priority 8 15 U.S.C. 78f(b). approving the proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 10 15 U.S.C. 78f(b)(5). 11 15 U.S.C. 78f(b)(8). 12 See International Securities Exchange, LLC (‘‘ISE’’) Rule 100 (a)(37C). 13 See Chicago Board Options Exchange, Incorporated (‘‘CBOE’’) Rule 1.1 (ggg). See also NASDAQ OMX PHLX, Inc. (‘‘Phlx’’) Rule 1000(b)(14). 14 See Securities Exchange Act Release Nos. 59287 (January 23, 2009), 74 FR 5694 (January 30, 2009) (‘‘ISE Approval Order’’); 61198 (December 17, 2009), 74 FR 68880 (December 29, 2009) (‘‘CBOE Approval Order’’); 61802 (March 30, 2010) (‘‘Phlx Approval Order’’) (together, the ‘‘Professional Customer Approval Orders’’). 15 Id. sroberts on DSKD5P82C1PROD with NOTICES 9 In VerDate Nov<24>2008 16:37 Apr 05, 2010 Jkt 220001 rules on national securities exchanges, and analyzed the role played in the shaping of these rules by various considerations and principles. In this regard, the Commission discussed the requirement of Section 6(b)(5) of the Act that the rules of an exchange be designed to protect investors and the public interest; traditional notions of customer priority in exchange trading; the agency obligations of exchange specialists; and the requirements of Section 11(a) of the Act.16 In approving the ISE proposal, the Commission articulated its view that priority for public customer orders is not an essential attribute of an exchange,17 and noted that in the past it has approved trading rules at options exchanges that do not give priority to orders of public customers that are priced no better than the orders of other market participants.18 In the ISE Approval Order, the Commission concluded that Section 6(b)(5) of the Act does not require an exchange to treat the orders of public customers who place orders at the frequency of more than 390 orders per day on average identically to the orders of public customers who do not meet that threshold.19 For the same reason, the Commission believes that the Exchange’s proposed rule change is consistent with Section 6(b)(5) of the Act. The Commission believes that its view with respect to the ISE Approval Order is equally applicable to the NYSE Amex proposal. In this regard, the Commission does not believe that the Act requires that the orders of a public customer or any other market participant be granted priority. Historically, in developing their trading and business models, exchanges have adopted rules, with Commission approval, that grant priority to certain participants over others, in order to attract order flow or to create more competitive markets. However, the Act does not entitle any participant to priority as a right. The requirement of Section 6(b)(8) of the Act that the rules of an exchange not impose an unnecessary or inappropriate burden upon competition does not necessarily mandate that a Professional Customer (as defined in the NYSE Amex proposal) be granted priority at a time that a 16 ISE Approval Order, supra note 14. For a brief synopsis of the requirements of Section 11(a), see infra, note 20. 17 See ISE Approval Order, supra note 14, at 5697. 18 See ISE Approval Order, supra note 14, at 5697, n. 41–44. 19 See ISE Approval Order, supra note 14, at 5697. See also CBOE Approval Order and Phlx Approval Order, supra note 14. PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 broker-dealer is not granted the same right. The NYSE Amex proposal simply restores the treatment of persons who would be deemed Professional Customers to a base line where no special priority benefits are granted.20 Thus, the Commission believes that it is consistent with the Act for the Exchange to amend its rules so that Professional Customer orders, like the orders of broker-dealers, are not granted special priority.21 Pursuant to Section 19(b)(2) of the Act,22 the Commission may not approve any proposed rule change, or amendment thereto, prior to the 30th day after the date of publication of notice of the filing thereof, unless the Commission finds good cause for so doing and publishes its reasons for so finding. The Commission hereby finds good cause for approving the proposed rule change before the 30th day after the date of publication of notice of filing thereof in the Federal Register.23 The Commission did not receive any comments on the proposed rule change. As noted above, the Commission previously found that exchange rules that distinguish between the orders of 20 In its proposal, the Exchange addressed compliance with Section 11(a) of the Act. Section 11(a) prohibits a member of a national securities exchange from effecting transactions on that exchange for its own account, the account of an associated person, or an account over which it or its associated person exercises discretion unless an exception applies. Section 11(a)(1) and the rules thereunder contain a number of exceptions for principal transactions by members and their associated persons, including the exceptions in subparagraph (G) of Section 11(a)(1) and in Rule 11a1–1(T), as well as Rule 11a2–2(T) under the Act. The Exchange represents that the proposal would not affect the availability of the exceptions to Section 11(a) of the Act, including the exceptions in subparagraph (G) of Section 11(a) and in Rules 11a1–1(T) and 11a2–2(T), as are currently available. See Notice, supra note 4 at 10852. 21 The Commission notes that certain trading practices that could be affected by the proposed rule change may raise issues outside the scope of its review of the proposal itself. Specifically, any entity that acts as ‘‘dealer,’’ as defined in Section 3(a)(5) of the Act, 15 U.S.C. 78c(a)(5), is required to register with the Commission under Section 15 of the Act, 15 U.S.C. 78o, and the rules and regulations thereunder, or qualify for any exception or exemption from registration. Activity that may cause a person to be deemed a dealer includes ‘‘‘quoting a market in or publishing quotes for securities (other than quotes on one side of the market on a quotations system generally available to non-broker-dealers, such as a retail screen broker for government securities).’’ See Definitions of Terms in and Specific Exemptions for Banks, Savings Associations, and Savings Banks Under Sections 3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934, Securities Exchange Act Release No. 47364, 68 FR 8686, 8689, note 26 (February 24, 2003) (quoting OTC Derivatives Dealers, Securities Exchange Act Release No. 40594 (October 23, 1998), 63 FR 59362, 59370, note 61 (November 3, 1998)). 22 15 U.S.C. 78s(b)(2). 23 See Notice, supra note 4. E:\FR\FM\06APN1.SGM 06APN1 Federal Register / Vol. 75, No. 65 / Tuesday, April 6, 2010 / Notices customers who place orders at the frequency of more than 390 orders per day on average during a calendar month for its own beneficial account(s) and the orders of customers who do not meet that threshold are consistent with the Act.24 Accordingly, pursuant to Section 19(b)(2) of the Act,25 the Commission finds good cause to approve the proposed rule change on an accelerated basis. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,26 that the proposed rule change (SR–NYSEAmex– 2010–18), be, and it hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–7753 Filed 4–5–10; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–61813; File No. SR– NYSEArca–2010–19] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Extending the Pilot Period To Receive Inbound Routes of Equities Orders from Archipelago Securities LLC March 31, 2010. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) and Rule 19b–4 thereunder,2 notice is hereby given that, on March 30, 2010, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. sroberts on DSKD5P82C1PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to extend the pilot period of the Exchange’s prior 24 See Professional Customer Approval Orders, supra note 14. 25 15 U.S.C. 78s(b)(2). 26 15 U.S.C. 78s(b)(2). 27 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. VerDate Nov<24>2008 16:37 Apr 05, 2010 Jkt 220001 approvals to receive inbound routes of equities orders from Archipelago Securities LLC (‘‘Arca Securities’’), an NYSE Arca affiliated ETP Holder. 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. Exchange’s authority to receive inbound routes of equities orders by Arca Securities is subject to a pilot period ending March 31, 2010.6 The Exchange hereby seeks to extend the previously approved pilot period (with the attendant obligations and conditions) for an additional 6 months, through September 30, 2010. 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. 2. Statutory Basis A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION 17459 1. Purpose Currently, Arca Securities is the approved outbound order routing facility of the Exchange.3 Arca Securities is also the approved outbound order routing facility of the New York Stock Exchange LLC (‘‘NYSE’’) and NYSE Amex LLC (‘‘NYSE Amex’’).4 The Exchange, through its wholly-owned subsidiary, NYSE Arca Equities, Inc., has also been previously approved to receive inbound routes of equities orders by Arca Securities in its capacity as an order routing facility of NYSE Amex and the NYSE.5 The 3 See Securities Exchange Act Release No. 53238 (July 28, 2006), 71 FR 44758 (August 7, 2006) (order approving SR–NYSEArca–2006–13); see also, Securities Exchange Act Release No. 52497 (September 22, 2005), 70 FR 56949 (September 29, 2005) (SR–PCX–2005–90); see also, Securities Exchange Act Release No. 44983 (October 25, 2001), 66 FR 55225 (November 1, 2001) (SR–PCX–00–25); see also, Securities Exchange Act Release No. 58681 (September 29, 2008), 73 FR 58285 (October 6, 2008) (order approving NYSEArca–2008–90). 4 See Securities Exchange Act Release No. 55590 (April 5, 2007), 72 FR 18707 (April 13, 2007) (notice of immediate effectiveness of SR–NYSE–2007–29); see also, Securities Exchange Act Release No. 58680 (September 29, 2008), 73 FR 58283 (October 6, 2008) (order approving SR–NYSE–2008–76). See Securities Exchange Act Release No. 59009 (November 24, 2008), 73 FR 73363 (December 2, 2008) (order approving SR–NYSEALTR–2008–07); see also, Securities Exchange Act Release No. 59473 (February 27, 2009) 74 FR 9853 (March 6, 2009) (order approving SR–NYSEALTR–2009–18). 5 See Securities Exchange Act Release No. 58681 (September 29, 2008), 73 FR 58285 (October 6, 2008) (order approving NYSEArca–2008–90); see PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 The proposed rule change is consistent with Section 6(b) 7 of the Securities Exchange Act of 1934 (the ‘‘Act’’), in general, and furthers the objectives of Section 6(b)(5) 8 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. Specifically, the proposed rule change will allow the Exchange to continue receiving inbound routes of equities orders from Arca Securities acting in its capacity as a facility of the NYSE and NYSE Amex, in a manner consistent with prior approvals and established protections. The Exchange believes that extending the previously approved pilot period for six months will permit both the Exchange and the Commission to further assess the impact of the Exchange’s authority to receive direct inbound routes of equities orders via Arca Securities (including the attendant obligations and conditions).9 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. also, Securities Exchange Act Release No. 59010 (November 24, 2008), 73 FR 73373 (December 2, 2008) (order approving SR–NYSEArca–2008–130). 6 See Securities Exchange Act Release No. 61267 (December 31, 2009), 75 FR 1096 (January 8, 2010) (notice of immediate effectiveness of SR– NYSEArca–2009–115). 7 15 U.S.C. 78f(b). 8 15 U.S.C. 78f(b)(5). 9 The Exchange is currently analyzing the condition regarding non-public information and system changes in order to better reflect the operation of Arca Securities. E:\FR\FM\06APN1.SGM 06APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 75, Number 65 (Tuesday, April 6, 2010)]
[Notices]
[Pages 17457-17459]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-7753]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61818; File No. SR-NYSEAmex-2010-18]


Self-Regulatory Organizations; NYSE Amex LLC; Order Granting 
Accelerated Approval of the Proposed Rule Change Relating to the 
Designation of a ``Professional Customer''

March 31, 2010.

I. Introduction

    On February 25, 2010, the NYSE Amex LLC (``NYSE Amex'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder \2\ to designate any Customer \3\ that places more than 390 
orders in listed options per day on average during a calendar month for 
its own beneficial account(s) as a ``Professional Customer.'' The 
proposed rule change was published for comment in the Federal Register 
on March 9, 2010.\4\ The Commission did not receive any comments on the 
proposed rule change. This order approves the proposal on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Under NYSE Amex rules, ``Customer'' is defined as ``an 
individual or organization that is not a Broker/Dealer.'' See NYSE 
Amex Rule 900.2NY(18).
    \4\ See Securities Exchange Act Release No. 61629 (March 2, 
2010), 75 FR 10851 (March 9, 2010) (``Notice'').
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II. Description of NYSE Amex's Proposal

    NYSE Amex proposes to adopt a new term, ``Professional Customer,'' 
which would be defined in NYSE Amex Rule 900.2NY(18A) as a person or 
entity that (i) is not a broker or dealer in securities, and (ii) 
places more than 390 orders in listed options per day on average during 
a calendar month for its own beneficial account(s). Under the proposal, 
a Professional Customer would be treated in the same manner as a broker 
or dealer in securities for purposes of certain execution rules of the 
Exchange. Specifically, the orders of a Professional Customer generally 
would be treated in the same manner as a broker-dealer in securities 
for the purposes of NYSE Amex Rules 900.3NY(j) (Facilitation Order), 
904G(f) (FLEX Trading Procedures and Principles--Crossing Limitations), 
934NY (Crossing), 934.1NY (Facilitation Cross Transactions), 934.2NY 
(At-Risk Cross Transactions), 934.3NY (Solicitation), 963NY (Priority 
and Order Allocation Procedures--Open Outcry), 963.1NY (Complex Order 
Transactions), 964NY (Display, Priority and Order Allocation--Trading 
Systems), 964.2NY(b)(1)(iii) (Participation Entitlement of Specialists 
and e-Specialists), 964.2NY(b)(3)(B) (Allocation of Participation 
Entitlement Amongst Specialist Pool), 980NY(b) (Electronic Complex 
Order Trading), Rule 995NY(b) (Prohibited Conduct--Limit Orders) and 
the Exchange's schedule of fees.
    Under the proposal, a Professional Customer would participate in 
NYSE Amex's allocation process on equal terms with broker-dealers--
i.e., Professional Customers would not receive priority over broker-
dealers in the allocation of orders on the Exchange. The Exchange 
states that the proposal would not otherwise affect non-broker-dealer 
individuals or entities under NYSE Amex rules. All Customer orders, 
including non-broker-dealer orders included in the definition of 
``Professional Customers,'' would continue to be treated equally for 
purposes of the Exchange's rules concerning away market protection.
    The proposal requires ATP holders to indicate whether Customer 
orders are ``Professional Customer'' orders.\5\ To comply with this 
requirement, ATP holders would be required to review their customers' 
activity on at least a quarterly basis to determine whether orders that 
are not for the account of a broker or dealer should be represented as 
Customer orders or Professional Customer orders.\6\ The Exchange states 
that it intends to file a separate proposed rule change to adopt fees 
for professional orders.\7\
---------------------------------------------------------------------------

    \5\ The Exchange intends to require firms to identify 
Professional Customer orders submitted electronically to the system 
by identifying them with the number ``8'' in the customer type 
field--a mandatory field required for order entry. Manual orders 
submitted outside the electronic system would be marked with an 
origin code of ``PC.'' These Professional Customer identifiers would 
also flow through Exchange systems into audit trail and trade 
reporting data. See Notice, supra note 4 at 10852.
    \6\ Orders for any customer that had an average of more than 390 
orders per day during any month of a calendar quarter must be 
represented as Professional Customer orders for the next calendar 
quarter. ATP Holders would be required to conduct a quarterly review 
and make any appropriate changes to the way in which they are 
representing orders within five business days after the end of each 
calendar quarter. While members only would be required to review 
their accounts on a quarterly basis, if during a quarter the 
Exchange identifies a customer for which orders are being 
represented as Customer orders but that has averaged more than 390 
orders per day during a month, the Exchange would notify the ATP 
Holder and the ATP Holder would be required to change the manner in 
which it is representing the customer's orders within five business 
days. The Exchange confirmed that references to ``five days'' in 
footnote 10 of the Notice should be read as ``five business days.'' 
E-mail from Matthew Vaughn, Counsel, NYSE Euronext to Ronesha 
Butler, Special Counsel, Division of Trading and Markets, dated 
March 31, 2010.
    \7\ See Notice, supra note 4 at 10852.
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III. Commission Findings and Order Granting Approval of the Proposed 
Rule Change Change

    After careful consideration of the proposed rule change, the 
Commission finds that the proposed rule change is consistent with the 
Act. Specifically, the Commission finds that the proposed rule change 
is consistent with Section

[[Page 17458]]

6(b) \8\ of the Act and the rules thereunder,\9\ and in particular 
with:
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    \8\ 15 U.S.C. 78f(b).
    \9\ In approving the proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    Section 6(b)(5) of the Act, which requires that the rules of a 
national securities exchange, among other things, be designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism for a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest; and not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers; \10\ and
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    \10\ 15 U.S.C. 78f(b)(5).
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    Section 6(b)(8) of the Act, which requires the rules of an exchange 
not to impose any burden on competition not necessary or appropriate in 
furtherance of the Act.\11\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b)(8).
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    Under the proposed rule change, customers who place orders on the 
level of frequency specified in proposed NYSE Amex Rule 900.2NY(18A) 
would be deemed Professional Customers and would no longer receive the 
priority treatment currently granted to all public customers. The 
Commission has previously approved similar proposals to give the orders 
of certain customers, identified as ``Professional Orders'' \12\ or 
``Professionals'',\13\ no greater priority than that given to broker-
dealer orders.\14\ Under the Professional Customer Approval Orders, the 
orders of public customers that are deemed Professional orders are no 
longer accorded the priority granted to the orders of all other public 
customers.\15\ While NYSE Amex Rule 900.2NY (18A) differs slightly from 
the rules adopted in the Professional Customer Approval Orders, the 
Commission believes that the Exchange's proposed rule change is 
comparable to rules of the ISE, CBOE and Phlx, which the Commission 
found to be consistent with the Act.
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    \12\ See International Securities Exchange, LLC (``ISE'') Rule 
100 (a)(37C).
    \13\ See Chicago Board Options Exchange, Incorporated (``CBOE'') 
Rule 1.1 (ggg). See also NASDAQ OMX PHLX, Inc. (``Phlx'') Rule 
1000(b)(14).
    \14\ See Securities Exchange Act Release Nos. 59287 (January 23, 
2009), 74 FR 5694 (January 30, 2009) (``ISE Approval Order''); 61198 
(December 17, 2009), 74 FR 68880 (December 29, 2009) (``CBOE 
Approval Order''); 61802 (March 30, 2010) (``Phlx Approval Order'') 
(together, the ``Professional Customer Approval Orders'').
    \15\ Id.
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    In the ISE Approval Order, the Commission reviewed the background 
and history of customer order priority rules on national securities 
exchanges, and analyzed the role played in the shaping of these rules 
by various considerations and principles. In this regard, the 
Commission discussed the requirement of Section 6(b)(5) of the Act that 
the rules of an exchange be designed to protect investors and the 
public interest; traditional notions of customer priority in exchange 
trading; the agency obligations of exchange specialists; and the 
requirements of Section 11(a) of the Act.\16\ In approving the ISE 
proposal, the Commission articulated its view that priority for public 
customer orders is not an essential attribute of an exchange,\17\ and 
noted that in the past it has approved trading rules at options 
exchanges that do not give priority to orders of public customers that 
are priced no better than the orders of other market participants.\18\
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    \16\ ISE Approval Order, supra note 14. For a brief synopsis of 
the requirements of Section 11(a), see infra, note 20.
    \17\ See ISE Approval Order, supra note 14, at 5697.
    \18\ See ISE Approval Order, supra note 14, at 5697, n. 41-44.
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    In the ISE Approval Order, the Commission concluded that Section 
6(b)(5) of the Act does not require an exchange to treat the orders of 
public customers who place orders at the frequency of more than 390 
orders per day on average identically to the orders of public customers 
who do not meet that threshold.\19\ For the same reason, the Commission 
believes that the Exchange's proposed rule change is consistent with 
Section 6(b)(5) of the Act.
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    \19\ See ISE Approval Order, supra note 14, at 5697. See also 
CBOE Approval Order and Phlx Approval Order, supra note 14.
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    The Commission believes that its view with respect to the ISE 
Approval Order is equally applicable to the NYSE Amex proposal. In this 
regard, the Commission does not believe that the Act requires that the 
orders of a public customer or any other market participant be granted 
priority. Historically, in developing their trading and business 
models, exchanges have adopted rules, with Commission approval, that 
grant priority to certain participants over others, in order to attract 
order flow or to create more competitive markets. However, the Act does 
not entitle any participant to priority as a right. The requirement of 
Section 6(b)(8) of the Act that the rules of an exchange not impose an 
unnecessary or inappropriate burden upon competition does not 
necessarily mandate that a Professional Customer (as defined in the 
NYSE Amex proposal) be granted priority at a time that a broker-dealer 
is not granted the same right. The NYSE Amex proposal simply restores 
the treatment of persons who would be deemed Professional Customers to 
a base line where no special priority benefits are granted.\20\ Thus, 
the Commission believes that it is consistent with the Act for the 
Exchange to amend its rules so that Professional Customer orders, like 
the orders of broker-dealers, are not granted special priority.\21\
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    \20\ In its proposal, the Exchange addressed compliance with 
Section 11(a) of the Act. Section 11(a) prohibits a member of a 
national securities exchange from effecting transactions on that 
exchange for its own account, the account of an associated person, 
or an account over which it or its associated person exercises 
discretion unless an exception applies. Section 11(a)(1) and the 
rules thereunder contain a number of exceptions for principal 
transactions by members and their associated persons, including the 
exceptions in subparagraph (G) of Section 11(a)(1) and in Rule 11a1-
1(T), as well as Rule 11a2-2(T) under the Act. The Exchange 
represents that the proposal would not affect the availability of 
the exceptions to Section 11(a) of the Act, including the exceptions 
in subparagraph (G) of Section 11(a) and in Rules 11a1-1(T) and 
11a2-2(T), as are currently available. See Notice, supra note 4 at 
10852.
    \21\ The Commission notes that certain trading practices that 
could be affected by the proposed rule change may raise issues 
outside the scope of its review of the proposal itself. 
Specifically, any entity that acts as ``dealer,'' as defined in 
Section 3(a)(5) of the Act, 15 U.S.C. 78c(a)(5), is required to 
register with the Commission under Section 15 of the Act, 15 U.S.C. 
78o, and the rules and regulations thereunder, or qualify for any 
exception or exemption from registration. Activity that may cause a 
person to be deemed a dealer includes ```quoting a market in or 
publishing quotes for securities (other than quotes on one side of 
the market on a quotations system generally available to non-broker-
dealers, such as a retail screen broker for government 
securities).'' See Definitions of Terms in and Specific Exemptions 
for Banks, Savings Associations, and Savings Banks Under Sections 
3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934, 
Securities Exchange Act Release No. 47364, 68 FR 8686, 8689, note 26 
(February 24, 2003) (quoting OTC Derivatives Dealers, Securities 
Exchange Act Release No. 40594 (October 23, 1998), 63 FR 59362, 
59370, note 61 (November 3, 1998)).
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    Pursuant to Section 19(b)(2) of the Act,\22\ the Commission may not 
approve any proposed rule change, or amendment thereto, prior to the 
30th day after the date of publication of notice of the filing thereof, 
unless the Commission finds good cause for so doing and publishes its 
reasons for so finding. The Commission hereby finds good cause for 
approving the proposed rule change before the 30th day after the date 
of publication of notice of filing thereof in the Federal Register.\23\ 
The Commission did not receive any comments on the proposed rule 
change. As noted above, the Commission previously found that exchange 
rules that distinguish between the orders of

[[Page 17459]]

customers who place orders at the frequency of more than 390 orders per 
day on average during a calendar month for its own beneficial 
account(s) and the orders of customers who do not meet that threshold 
are consistent with the Act.\24\ Accordingly, pursuant to Section 
19(b)(2) of the Act,\25\ the Commission finds good cause to approve the 
proposed rule change on an accelerated basis.
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    \22\ 15 U.S.C. 78s(b)(2).
    \23\ See Notice, supra note 4.
    \24\ See Professional Customer Approval Orders, supra note 14.
    \25\ 15 U.S.C. 78s(b)(2).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-NYSEAmex-2010-18), be, and 
it hereby is, approved on an accelerated basis.
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    \26\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7753 Filed 4-5-10; 8:45 am]
BILLING CODE 8011-01-P

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