Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending its Rule 440B (Short Sales) in Order To Implement the Provisions of Rule 201 of Regulation SHO Under the Securities Exchange Act of 1934, 12165-12169 [2011-4895]

Download as PDF Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices 2. Statutory Basis The statutory basis for the proposed rule change is Section 6(b)(5) of the Act,17 which requires, among other things, the rules of an exchange to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. The proposed rule change also is designed to support the principles of Section 11A(a)(1) of the Act 18 in that it seeks to assure fair competition among brokers and dealers and among exchange markets. The Exchange believes that the proposed rule meets these requirements in that it implements rules adopted by the Commission in Regulation SHO under the Act. 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 not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. IV. Solicitation of Comments III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 19 and Rule 19b– 4(f)(6) 20 thereunder. A proposed rule change filed under Rule 19b–4(f)(6) 21 normally may not become operative prior to 30 days after the date of filing. However, Rule 19b– 4(f)(6)(iii) 22 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. BX has requested that the Commission waive 17 15 U.S.C. 78f(b)(5). U.S.C. 78k–1(a)(1). 19 15 U.S.C. 78s(b)(3)(A). 20 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 21 17 CFR 240.19b–4(f)(6). 22 Id. jlentini on DSKJ8SOYB1PROD with NOTICES 18 15 VerDate Mar<15>2010 19:16 Mar 03, 2011 Jkt 223001 the 30-day operative delay so that it may implement the change no later than February 28, 2011 to coincide with the compliance date for the amendments to Rules 200(g) and 201 of Regulation SHO. The Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest because the proposed rule change, among other things, implements the amendments to Rules 200(g) and 201 of Regulation SHO which have a February 28, 2011 compliance date.23 For this reason, the Commission designates the proposed rule change to be operative upon filing with the Commission.24 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend 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. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. 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: 12165 Internet Web site (http://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 the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BX–2011–010 and should be submitted on or before March 25, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Cathy H. Ahn, Deputy Secretary. [FR Doc. 2011–4893 Filed 3–3–11; 8:45 am] BILLING CODE 8011–01–P Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–BX–2011–010 on the subject line. Paper Comment • 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–BX–2011–010. 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 23 See supra note 5. purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule change’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 24 For PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63977; File No. SR–NYSE– 2011–05] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending its Rule 440B (Short Sales) in Order To Implement the Provisions of Rule 201 of Regulation SHO Under the Securities Exchange Act of 1934 February 25, 2011. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that on February 24, 2011, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the 25 17 CFR 200.30–3(a)(12). U.S.C.78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 E:\FR\FM\04MRN1.SGM 04MRN1 12166 Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices jlentini on DSKJ8SOYB1PROD with NOTICES proposed rule change as described in Items I and II below, which Items have been substantially prepared by the selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Rule 440B (Short Sales) in order to implement the provisions of Rule 201 of Regulation SHO (‘‘Rule 201’’) 4 under the Act which, if triggered, imposes a restriction on the prices at which securities may be sold short (‘‘Short Sale Price Test’’). Among other things, Rule 201 requires trading centers to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the execution or display of a short sale order of a covered security at a price that is less than or equal to the current national best bid if the price of a covered security decreases by 10% or more from the covered security’s closing price as determined by the listing market for the covered security as of the end of regular trading hours on the prior day. The proposed rule amendment would establish procedures for the Exchange, as a listing market, to determine that a Short Sale Price Test has been triggered for a covered security. The proposed rule amendment would also establish the protocols for the handling of short sale orders by the Exchange, as a trading center, in the event the Short Sale Price Test is triggered, including establishing what types of short sale orders will be repriced to achieve a permitted price, in accordance with Rule 201, during the period in which a Short Sale Price Test is in effect (‘‘Short Sale Period’’).5 Amended Rule 440B would also establish the Exchange’s procedures regarding the execution and display of permissible orders during the Short Sale Period, and the execution of orders marked ‘‘short exempt.’’ Further, the proposed rule amendment would establish the Exchange’s procedures regarding the permissible execution price of short sale orders in singlepriced opening, re-opening and closing transactions. The proposed rule amendment would also make minor technical changes to the Supplementary Material to Rule 440B.6 Finally, the 4 17 CFR 242.201. notes 24–26 infra and accompanying text. 6 Supplementary Material to Rule 440B is proposed to be amended to (a) delete an incorrect reference to Rule 440B(c) (in .11) and (b) to permit orders to be marked ‘‘short exempt’’ in accordance with Rules 200(g)(2) and 201 of Regulation SHO (in 5 See VerDate Mar<15>2010 19:16 Mar 03, 2011 Jkt 223001 proposed rule amendment would also establish Exchange procedures for addressing situations where the Exchange determines that the Short Sale Price Test for a covered security was triggered by a ‘‘clearly erroneous’’ execution as that term is defined in NYSE Rule 128.7 The Exchange also proposes to amend its Rule 900 (Off-Hours Trading: Applicability and Definitions) to apply Rule 440B (including the short sale price test restrictions of Rule 201) to transactions in the Off-Hours Trading Facility (by deleting the current exclusion for Rule 440B). The text of the proposed rule change is available at the Exchange, the Commission’s Public Reference Room, and http:// www.nyse.com. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose On February 26, 2010, the Commission adopted amendments to Rule 201.8 Among other things, the amendments establish a short salerelated circuit breaker that, if triggered with respect to a covered security,9 .12). The remaining provisions in Supplementary Material are not proposed to be modified and will remain in effect. 7 See infra note 23 and accompanying text regarding ‘‘clearly erroneous’’ trades and proposed Rule 440B(d)(1). The proposed rule amendment would establish the duration of the Short Sale Price Test. See infra note 22 and accompanying text. In addition, the proposed rule amendment would provide for an Exchange determination that a Short Sale Price Test has been triggered for covered securities for which the Exchange is the listing market. See infra notes 21–22 and accompanying text. 8 Amendments to Regulation SHO, Securities Exchange Act Release No. 61595 (Feb. 26, 2010), 75 FR 11232 (Mar. 10, 2010) (‘‘Rule 201 Adopting Release’’). In the Rule 201 Adopting Release, the Commission also adopted amendments to Rule 200(g) of Regulation SHO to include a ‘‘short exempt’’ marking requirement. 17 CFR 242.200(g). 9 The term ‘‘covered security’’ shall have the same meaning as in Rule 201 of Regulation SHO. Rule PO 00000 Frm 00154 Fmt 4703 Sfmt 4703 imposes a Short Sale Price Test.10 Amended Rule 201 became effective on May 10, 2010 and the compliance date for the Rule is February 28, 2011.11 Rule 201(b) requires that trading centers,12 including the NYSE, establish, maintain, and enforce written policies and procedures reasonably designed to prevent the execution or display of a short sale order of a covered security at a price that is less than or equal to the current national best bid 13 if the price of that covered security decreases by 10% or more from the covered security’s closing price as determined by the listing market 14 for the covered security as of the end of regular trading hours on the prior day (‘‘Trigger Price’’).15 In addition, Rule 201(b) requires that trading centers establish, maintain, and enforce written policies and procedures reasonably designed to impose the Short Sale Price Test for the remainder of the day and the following day when a national best bid for the covered security is calculated and disseminated on a current and continuing basis by a plan processor pursuant to an effective national market system plan.16 201(a)(1) defines the term ‘‘covered security’’ to mean any ‘‘NMS stock’’ as defined under Rule 600(b)(47) of Regulation NMS. Rule 600(b)(47) of Regulation NMS defines an ‘‘NMS stock’’ as ‘‘any NMS security other than an option.’’ Rule 600(b)(46) of Regulation NMS defines an ‘‘NMS security’’ as ‘‘any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options.’’ 17 CFR 242.201(a)(1); 17 CFR 242.600(b)(47); and 17 CFR 242.600(b)(46). 10 17 CFR 242.201(b). 11 Rule 201 Adopting Release, 75 FR 11232. The Rule 201 compliance date, originally set for November 10, 2010, was extended to February 28, 2011 in Securities Exchange Act Release No. 63247 (Nov. 4, 2010), 75 FR 68702 (Nov. 9, 2010). The May 10th effective date and February 28th compliance date also apply to amended Rule 200(g). 12 Rule 201(a)(9) states that the term ‘‘trading center’’ shall have the same meaning as in Rule 600(b)(78) of Regulation NMS. Rule 600(b)(78) defines a ‘‘trading center’’ as ‘‘a national securities exchange or national securities association that operates an SRO trading facility, an alternative trading system, an exchange market maker, an OTC market maker, or any other broker or dealer that executes orders internally by trading as principal or crossing orders as agent.’’ 17 CFR 242.600(b)(78). 13 The term ‘‘national best bid’’ shall have the same meaning as in Rule 201 of Regulation SHO. Rule 201(a)(4) states that such term shall have the same meaning as in Rule 600(b)(42) of Regulation NMS. 17 CFR 242.201(a)(4); 17 CFR 242.600(b)(42). 14 The term ‘‘listing market’’ shall have the same meaning as in Rule 201 of Regulation SHO. Rule 201(a)(3) defines the term ‘‘listing market’’ to have the same meaning as the term ‘‘listing market’’ as defined in the effective transaction reporting plan for the covered security. 17 CFR 242.201(a)(3). See also 17 CFR 242.201(a)(2). 15 17 CFR 242.201(b)(1)(i). 16 17 CFR 242.201(b)(1)(ii). In addition, if the price of a covered security declines intra-day by at E:\FR\FM\04MRN1.SGM 04MRN1 Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices jlentini on DSKJ8SOYB1PROD with NOTICES In the Rule 201 Adopting Release, the Commission stated that it was appropriate to adopt a short sale-related circuit breaker because, when triggered, it will prevent short selling, including potentially manipulative or abusive short selling, from driving down further the price of a security that has already experienced a significant intra-day price decline, and will facilitate the ability of long sellers to sell first upon such a decline.17 The Commission further stated that this approach establishes a narrowly-tailored Rule that strikes an appropriate balance between its goal of preventing potential short sale abuses and the need to limit impediments to the normal operations of the market,18 and as such, the Rule will help address the erosion of investor confidence in markets generally.19 For these reasons, the Exchange seeks to amend its short sale rule to comply with the Commission’s amendment of Rule 201. Paragraph (b) of the proposed rule makes clear that, in compliance with Rule 201, in the event a covered security experiences a decrease in price of 10% or more, as determined by the listing market for the security, from the security’s closing price on the listing market as of the end of regular trading hours on the prior day, except for certain permissible and short exempt orders,20 Exchange systems will not execute or display a short sale order with respect to that security at a price that is less than or equal to the current national best bid. Where the Exchange is the listing market for a covered security, Exchange systems will determine whether the short sale price test restrictions of Rule 201 have been triggered (i.e., whether a transaction in a covered security has occurred at a Trigger Price) and will notify the single plan processor responsible for consolidation of information for the covered security pursuant to Rule 603(b) of Regulation least 10% on a day on which the security is already subject to the short sale price test restriction of Rule 201, the restriction will be re-triggered and, therefore, will continue in effect for the remainder of that day and the following day. See Rule 201 Adopting Release, 75 FR 11232, 11253, n. 290. Rule 201 does not place any limit on the frequency or number of times the circuit breaker can be retriggered with respect to a particular stock. Division of Trading and Markets: Responses to Frequently Asked Questions Concerning Rule 201 of Regulation SHO, at Q&A 2.2 (‘‘T&M FAQs’’). 17 Rule 201 Adopting Release, 75 FR 11232. 18 Rule 201 Adopting Release, 75 FR 11232, 11252. 19 Id. 20 See paragraphs (f) and (g) of proposed Rule 440B regarding the treatment of permissible and short exempt orders. VerDate Mar<15>2010 19:16 Mar 03, 2011 Jkt 223001 NMS.21 The Trigger Price of a covered security will not be calculated until the Exchange opens trading for that security. In circumstances where a covered security did not trade on the Exchange on the prior trading day (for example, due to a trading halt, trading suspension, or otherwise), the Exchange will base its determination of the Trigger Price on the last sale on the Exchange for that security on the most recent day on which the security did trade. Once a Short Sale Price Test is triggered by the listing market, the Short Sale Price Test will remain in effect until the close of trading on the next trading day.22 If, however, the Exchange determines that the Short Sale Price Test for a covered security was triggered because of a clearly erroneous execution,23 the Exchange may lift the Short Sale Price Test before the Short Sale Period ends for securities for which the Exchange is the listing market or, for securities listed on another market, notify the other market of the Exchange’s determination that the triggering transaction was a clearly erroneous execution. Similarly, if the Exchange determines that the prior day’s closing price for a covered security for which the Exchange is the listing market is incorrect in Exchange systems and resulted in an incorrect determination that the short sale price restriction had been triggered, the Exchange may correct the prior day’s closing price and lift the Short Sale Price Test before the Short Sale Period ends. During the Short Sale Period, short sale orders that are limited to the national best bid or lower and short sale market orders will be re-priced by Exchange systems one minimum price increment above the current national best bid (‘‘Permitted Price’’) to permit their execution at a price that is compliant with the Short Sale Price Test. Consistent with Rule 201,24 the Permitted Price for securities for which the national best bid is $1 or more is 21 17 CFR 242.201(b)(3). See also Rule 201(a)(6) of Regulation SHO, which defines the term ‘‘plan processor’’ to have the same meaning as in Rule 600(b)(55) of Regulation NMS. 17 CFR 242.600(b)(55). The single plan processors are ‘‘exclusive processors’’ as defined under Section 3(a)(22) of the Act. See 15 U.S.C. 78c(a)(22). 22 The Short Sale Price Test will remain in effect at all times when quotation information and the national best bid is collected, processed and disseminated. This may extend beyond regular trading hours. T&M FAQs, supra note 16, at Q&A 2.1. 23 Determination of a ‘‘clearly erroneous’’ transaction will be made in accordance with Exchange Rule 128. 24 Rule 201 Adopting Release, 75 FR 11232, 11247. PO 00000 Frm 00155 Fmt 4703 Sfmt 4703 12167 $.01 above the national best bid; the Permitted Price for securities for which the national best bid is below $1 is $.0001 above the national best bid.25 To reflect declines in the national best bid, the Exchange will continue to reprice a short sale order at the lowest Permitted Price down to the order’s original limit price, or if a market order, until the order is filled. Non-displayed orders will also be re-priced upward to a Permitted Price to correspond with a rise in the national best bid.26 Also, during the Short Sale Period, immediate or cancel (‘‘IOC’’) orders will be executed to the extent possible at a Permitted Price and higher and then cancelled, and will not be re-priced. Inter-market sweep orders not marked ‘‘short exempt’’ will be handled in the same manner as IOC orders.27 In addition, during the Short Sale Period, Exchange systems will mark certain designated market maker (‘‘DMM’’) sale interest as ‘‘long’’ or ‘‘short’’ on behalf of the DMM unit based on position information provided by the DMM unit.28 For such DMM interest, after a security has opened for trading, Exchange systems (i) will not execute or display such DMM short sale interest 29 that is priced at or below the current national best bid and will cancel any such DMM interest, and (ii) will cancel any such DMM interest if the execution 25 17 CFR 242.612. following example illustrates the operation of Exchange systems in this situation. Assume the national best bid is 10.10 and a sell short order priced at 10.10 arrives at the Exchange during the Short Sale Period. The order will be re-priced to 10.11 and will rest on the limit order book. The national best bid then rises to 10.11. If that short sale order was displayed on the offer side, that order will remain priced at 10.11. See note 30 infra and accompanying text. If the order was not displayed at the customer’s instruction, then the order will be re-priced to 10.12 because it cannot be executed at the national best bid. See T&M FAQs, supra note 16, at Q&A 4.1. 27 See Exchange Rule 13 for the definition of inter-market sweep order. 28 Under Rule 200(g) of Regulation SHO, brokerdealers are responsible for proper marking of orders. However, with respect to certain trading by DMM units, Exchange systems will monitor DMM unit positions on a real-time basis during the trading day and will be responsible for order marking on behalf of DMM units for certain trading entered through Exchange systems. This will be done by receiving a position report prior to the opening of trading and updating DMM unit positions based on position information provided by the DMM unit and/or Exchange trade executions during the day. DMM units will be responsible for properly marking any DMM interest entered into Exchange systems for which the Exchange does not monitor or update the DMM unit’s position. Exchange systems will treat such DMM interest that is marked short the same as how it treats other interest, as provided for in proposed Rule 440B(e), and will not cancel such DMM interest as provided for in proposed Rule 440B(e)(2). 29 See Exchange Rules 104(b) and 1000 regarding DMM trading algorithms and automatic execution. 26 The E:\FR\FM\04MRN1.SGM 04MRN1 12168 Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices jlentini on DSKJ8SOYB1PROD with NOTICES of the full amount of all DMM sell interest at a price at or below the national best bid would result in a change in the DMM position from long to short. During the Short Sale Period, Exchange systems will execute and display a short sale order without regard to price if, at the time of initial display of the short sale order, the order was at a price above the then current national best bid.30 Un-displayed short sale orders that are entered into the Exchange’s systems prior to the Short Sale Period will be re-priced as described above. As permitted by Rule 201, during the Short Sale Period, Exchange systems will execute and display orders marked ‘‘short exempt’’ without regard to whether the order is at a Permitted Price.31 Exchange systems will also accept orders marked ‘‘short exempt’’ at any time when such systems are open for order entry, regardless of whether the Short Sale Price Test has been triggered.32 In addition, the proposed amendments to Rule 440B will also provide for calculation of the Permitted Price and re-pricing of short sale orders with respect to any single-priced opening, re-opening or closing transaction during the Short Sale Period. Paragraph (h) of Rule 440B, as proposed, would provide that, with respect to the execution of short sale orders in a covered security in any single-priced opening, re-opening or closing transaction during the Short Sale Period, Exchange systems will reprice short sale orders in a covered security as follows: (1) Opening—one minimum price increment above the national best bid at 9:30 a.m.; (2) Reopening following a halt or pause in trading—one minimum price increment above the last published Exchange bid prior to such halt or pause; and (3) Closing—one minimum price increment above the last published Exchange bid prior to the close.33 For purposes of paragraph (h) the term ‘‘minimum price increment’’ shall mean $.01 for securities for which the national best bid or the published Exchange bid, as the case may be, is $1 or more, and $.0001 for securities for which the national best bid or the published 30 See also 17 CFR 242.201(b)(1)(iii)(A). also 17 CFR 242.201(b)(1)(iii)(B). 32 Exchange systems will also follow the guidance in the T&M FAQs. See supra note 16. 33 See Letter from James Brigagliano, Deputy Director, Division of Trading & Markets, SEC, to Janet McGinness, Senior Vice President and Secretary, NYSE Euronext, February 7, 2011. 31 See VerDate Mar<15>2010 19:16 Mar 03, 2011 Jkt 223001 Exchange bid, as the case may be, is below $1. Paragraph (h) of Rule 440B, as proposed, also provides that, during a Short Sale Period, Exchange systems will not execute a short sale order for a covered security in a single-priced opening transaction at or below the national best bid at 9:30 a.m.,34 and will not execute a short sale order for a covered security in a single-priced reopening or closing transaction at or below the last published Exchange bid prior to a halt or pause in trading (in the case of a single-priced re-opening transaction), or at or below the last published Exchange bid prior to the close (in the case of a single-priced closing transaction). The Exchange is also proposing changes to the Supplementary Material to Rule 440B. First, in .11, the Exchange is proposing to delete an outdated reference to Rule 440B(c). Second, the Exchange is proposing to amend .12 to add language permitting orders to be marked ‘‘short exempt’’ in accordance with Rule 200(g)(2) and Rule 201 of Regulation SHO. Under amended .12, an order may be marked ‘‘short exempt’’ if the broker-dealer had a reasonable basis for believing that the order meets one of the exceptions specified in Rule 201(d) of Regulation SHO.35 An order may also be marked ‘‘short exempt’’ if it is entered during a Short Sale Period and meets the conditions specified in Rule 201(c) of Regulation SHO.36 Finally, the Exchange also proposes to amend its Rule 900 regarding its OffHours Trading Facility to apply Rule 440B (including the short sale price test restrictions of Rule 201) to transactions in the Off-Hours Trading Facility (by deleting the current exclusion for Rule 440B). An obsolete reference to the Intermarket Trading System (‘‘ITS’’) in Rule 900(b) will also be deleted. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,37 in general, and furthers the objectives of Section 6(b)(5) of the Act,38 in particular, in that it is designed to, among other things, prevent fraudulent and manipulative acts and practices, to 34 Short sale orders designated for execution only at the opening will be cancelled if not executed at the opening. Other short sale orders will remain on the Display Book for execution during the trading day if at a Permitted Price or higher and may be repriced throughout the day, consistent with proposed Rule 440B(e). 35 17 CFR 242.201(d); T&M FAQs, supra note 16, at Q&A 5.4. 36 17 CFR 242.201(c); see also T&M FAQs, supra note 16, at Q&A 4.2 and 5.5. 37 15 U.S.C. 78f(b). 38 15 U.S.C. 78f(b)(5). PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 promote just and equitable principles of trade, and, in general, to protect investors and the public interest. The proposal is designed to implement the provisions of Rule 201 of Regulation SHO by establishing, maintaining and enforcing written policies and procedures reasonably designed to prevent the execution or display of a short sale order of a covered security in violation of the Short Sale Price Test established in that rule. To that end, the proposed rule change will, among other things, establish the Exchange’s procedures regarding the execution and display of permissible orders during the Short Sale Period, and the execution of orders marked ‘‘short exempt.’’ B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 39 and Rule 19b–4(f)(6) thereunder.40 Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 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, the proposed rule change has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 41 and Rule 19b–4(f)(6)(iii) thereunder.42 A proposed rule change filed under Rule 19b–4(f)(6) 43 normally does not 39 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). 41 15 U.S.C. 78s(b)(3)(A)(iii). 42 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 19b–4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 43 17 CFR 240.19b–4(f)(6). 40 17 E:\FR\FM\04MRN1.SGM 04MRN1 Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices 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 (http://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 20549–1090. Copies of the filing will also be available for inspection and copying at the NYSE’s principal office and on its Internet Web site at http://www.nyse.com. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSE–2011–05 and should be submitted on or before March 25, 2011. 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: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.46 Cathy H. Ahn, Deputy Secretary. Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSE–2011–05 on the subject line. jlentini on DSKJ8SOYB1PROD with NOTICES become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),44 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission hereby grants the request.45 Waiving the 30-day operative delay will allow the Exchange to implement the proposed amendments by February 28, 2011, which, as noted by the Exchange, is the compliance date for amendments to Regulation SHO under the Act. By waiving the operative delay, the Exchange will be able to comply with the amendments to Regulation SHO by February 28, 2011. Therefore, the Commission believes it is consistent with the protection of investors and the public interest to waive the 30-day operative delay and designates the proposal as operative upon filing. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend 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. SECURITIES AND EXCHANGE COMMISSION Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2011–05. This file number should be included on the 44 17 CFR 240.19b–4(f)(6)(iii). purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule change’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 45 For VerDate Mar<15>2010 19:16 Mar 03, 2011 Jkt 223001 [FR Doc. 2011–4895 Filed 3–3–11; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–63985; File No. SR–Phlx– 2011–23] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC Relating to Clarifying Changes to Rules 607 and 3202 Concerning the Application and Collection of the Covered Sale Fee February 28, 2011. 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 February 16, 2011, NASDAQ OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the 46 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00157 Fmt 4703 Sfmt 4703 12169 Securities and Exchange Commission (‘‘SEC’’ or ‘‘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 Exchange proposes to make clarifying changes to Rules 607and 3202 concerning the application and collection of the Covered Sale Fee. The text of the proposed rule change is available on the Exchange’s Website at http://www.nasdaqtrader.com/ micro.aspx?id=PHLXRulefilings, at the principal office of the Exchange, on the Commission’s Web site at http:// www.sec.gov, 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 Exchange 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 Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to make clarifying changes to Rules 607 and 3202 concerning the application and collection of the Covered Sale Fee. In light of the varying means by which a Covered Sale Fee is incurred by members, as described below, the Exchange believes that a more detailed description of the circumstances that trigger the Covered Sale Fee is warranted. Accordingly, the new rule language proposed by the Exchange expressly discusses covered sales in both equity and option securities. In addition, the proposed new rule language includes a description of sell orders entered into the Exchange transaction execution systems that result in a covered sale on another exchange, expressly discussing the fee incurred by the Exchange and E:\FR\FM\04MRN1.SGM 04MRN1

Agencies

[Federal Register Volume 76, Number 43 (Friday, March 4, 2011)]
[Notices]
[Pages 12165-12169]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-4895]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63977; File No. SR-NYSE-2011-05]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending its Rule 440B (Short Sales) in Order To Implement the 
Provisions of Rule 201 of Regulation SHO Under the Securities Exchange 
Act of 1934

February 25, 2011.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on February 24, 2011, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the

[[Page 12166]]

proposed rule change as described in Items I and II below, which Items 
have been substantially prepared by the self-regulatory organization. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to amend its Rule 440B (Short Sales) in order 
to implement the provisions of Rule 201 of Regulation SHO (``Rule 
201'') \4\ under the Act which, if triggered, imposes a restriction on 
the prices at which securities may be sold short (``Short Sale Price 
Test''). Among other things, Rule 201 requires trading centers to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to prevent the execution or display of a short sale 
order of a covered security at a price that is less than or equal to 
the current national best bid if the price of a covered security 
decreases by 10% or more from the covered security's closing price as 
determined by the listing market for the covered security as of the end 
of regular trading hours on the prior day. The proposed rule amendment 
would establish procedures for the Exchange, as a listing market, to 
determine that a Short Sale Price Test has been triggered for a covered 
security. The proposed rule amendment would also establish the 
protocols for the handling of short sale orders by the Exchange, as a 
trading center, in the event the Short Sale Price Test is triggered, 
including establishing what types of short sale orders will be re-
priced to achieve a permitted price, in accordance with Rule 201, 
during the period in which a Short Sale Price Test is in effect 
(``Short Sale Period'').\5\ Amended Rule 440B would also establish the 
Exchange's procedures regarding the execution and display of 
permissible orders during the Short Sale Period, and the execution of 
orders marked ``short exempt.'' Further, the proposed rule amendment 
would establish the Exchange's procedures regarding the permissible 
execution price of short sale orders in single-priced opening, re-
opening and closing transactions. The proposed rule amendment would 
also make minor technical changes to the Supplementary Material to Rule 
440B.\6\ Finally, the proposed rule amendment would also establish 
Exchange procedures for addressing situations where the Exchange 
determines that the Short Sale Price Test for a covered security was 
triggered by a ``clearly erroneous'' execution as that term is defined 
in NYSE Rule 128.\7\
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    \4\ 17 CFR 242.201.
    \5\ See notes 24-26 infra and accompanying text.
    \6\ Supplementary Material to Rule 440B is proposed to be 
amended to (a) delete an incorrect reference to Rule 440B(c) (in 
.11) and (b) to permit orders to be marked ``short exempt'' in 
accordance with Rules 200(g)(2) and 201 of Regulation SHO (in .12). 
The remaining provisions in Supplementary Material are not proposed 
to be modified and will remain in effect.
    \7\ See infra note 23 and accompanying text regarding ``clearly 
erroneous'' trades and proposed Rule 440B(d)(1). The proposed rule 
amendment would establish the duration of the Short Sale Price Test. 
See infra note 22 and accompanying text. In addition, the proposed 
rule amendment would provide for an Exchange determination that a 
Short Sale Price Test has been triggered for covered securities for 
which the Exchange is the listing market. See infra notes 21-22 and 
accompanying text.
---------------------------------------------------------------------------

    The Exchange also proposes to amend its Rule 900 (Off-Hours 
Trading: Applicability and Definitions) to apply Rule 440B (including 
the short sale price test restrictions of Rule 201) to transactions in 
the Off-Hours Trading Facility (by deleting the current exclusion for 
Rule 440B). The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and http://www.nyse.com.

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

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

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

1. Purpose
    On February 26, 2010, the Commission adopted amendments to Rule 
201.\8\ Among other things, the amendments establish a short sale-
related circuit breaker that, if triggered with respect to a covered 
security,\9\ imposes a Short Sale Price Test.\10\ Amended Rule 201 
became effective on May 10, 2010 and the compliance date for the Rule 
is February 28, 2011.\11\
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    \8\ Amendments to Regulation SHO, Securities Exchange Act 
Release No. 61595 (Feb. 26, 2010), 75 FR 11232 (Mar. 10, 2010) 
(``Rule 201 Adopting Release''). In the Rule 201 Adopting Release, 
the Commission also adopted amendments to Rule 200(g) of Regulation 
SHO to include a ``short exempt'' marking requirement. 17 CFR 
242.200(g).
    \9\ The term ``covered security'' shall have the same meaning as 
in Rule 201 of Regulation SHO. Rule 201(a)(1) defines the term 
``covered security'' to mean any ``NMS stock'' as defined under Rule 
600(b)(47) of Regulation NMS. Rule 600(b)(47) of Regulation NMS 
defines an ``NMS stock'' as ``any NMS security other than an 
option.'' Rule 600(b)(46) of Regulation NMS defines an ``NMS 
security'' as ``any security or class of securities for which 
transaction reports are collected, processed, and made available 
pursuant to an effective transaction reporting plan, or an effective 
national market system plan for reporting transactions in listed 
options.'' 17 CFR 242.201(a)(1); 17 CFR 242.600(b)(47); and 17 CFR 
242.600(b)(46).
    \10\ 17 CFR 242.201(b).
    \11\ Rule 201 Adopting Release, 75 FR 11232. The Rule 201 
compliance date, originally set for November 10, 2010, was extended 
to February 28, 2011 in Securities Exchange Act Release No. 63247 
(Nov. 4, 2010), 75 FR 68702 (Nov. 9, 2010). The May 10th effective 
date and February 28th compliance date also apply to amended Rule 
200(g).
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    Rule 201(b) requires that trading centers,\12\ including the NYSE, 
establish, maintain, and enforce written policies and procedures 
reasonably designed to prevent the execution or display of a short sale 
order of a covered security at a price that is less than or equal to 
the current national best bid \13\ if the price of that covered 
security decreases by 10% or more from the covered security's closing 
price as determined by the listing market \14\ for the covered security 
as of the end of regular trading hours on the prior day (``Trigger 
Price'').\15\ In addition, Rule 201(b) requires that trading centers 
establish, maintain, and enforce written policies and procedures 
reasonably designed to impose the Short Sale Price Test for the 
remainder of the day and the following day when a national best bid for 
the covered security is calculated and disseminated on a current and 
continuing basis by a plan processor pursuant to an effective national 
market system plan.\16\
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    \12\ Rule 201(a)(9) states that the term ``trading center'' 
shall have the same meaning as in Rule 600(b)(78) of Regulation NMS. 
Rule 600(b)(78) defines a ``trading center'' as ``a national 
securities exchange or national securities association that operates 
an SRO trading facility, an alternative trading system, an exchange 
market maker, an OTC market maker, or any other broker or dealer 
that executes orders internally by trading as principal or crossing 
orders as agent.'' 17 CFR 242.600(b)(78).
    \13\ The term ``national best bid'' shall have the same meaning 
as in Rule 201 of Regulation SHO. Rule 201(a)(4) states that such 
term shall have the same meaning as in Rule 600(b)(42) of Regulation 
NMS. 17 CFR 242.201(a)(4); 17 CFR 242.600(b)(42).
    \14\ The term ``listing market'' shall have the same meaning as 
in Rule 201 of Regulation SHO. Rule 201(a)(3) defines the term 
``listing market'' to have the same meaning as the term ``listing 
market'' as defined in the effective transaction reporting plan for 
the covered security. 17 CFR 242.201(a)(3). See also 17 CFR 
242.201(a)(2).
    \15\ 17 CFR 242.201(b)(1)(i).
    \16\ 17 CFR 242.201(b)(1)(ii). In addition, if the price of a 
covered security declines intra-day by at least 10% on a day on 
which the security is already subject to the short sale price test 
restriction of Rule 201, the restriction will be re-triggered and, 
therefore, will continue in effect for the remainder of that day and 
the following day. See Rule 201 Adopting Release, 75 FR 11232, 
11253, n. 290. Rule 201 does not place any limit on the frequency or 
number of times the circuit breaker can be re-triggered with respect 
to a particular stock. Division of Trading and Markets: Responses to 
Frequently Asked Questions Concerning Rule 201 of Regulation SHO, at 
Q&A 2.2 (``T&M FAQs'').

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[[Page 12167]]

    In the Rule 201 Adopting Release, the Commission stated that it was 
appropriate to adopt a short sale-related circuit breaker because, when 
triggered, it will prevent short selling, including potentially 
manipulative or abusive short selling, from driving down further the 
price of a security that has already experienced a significant intra-
day price decline, and will facilitate the ability of long sellers to 
sell first upon such a decline.\17\ The Commission further stated that 
this approach establishes a narrowly-tailored Rule that strikes an 
appropriate balance between its goal of preventing potential short sale 
abuses and the need to limit impediments to the normal operations of 
the market,\18\ and as such, the Rule will help address the erosion of 
investor confidence in markets generally.\19\ For these reasons, the 
Exchange seeks to amend its short sale rule to comply with the 
Commission's amendment of Rule 201.
---------------------------------------------------------------------------

    \17\ Rule 201 Adopting Release, 75 FR 11232.
    \18\ Rule 201 Adopting Release, 75 FR 11232, 11252.
    \19\ Id.
---------------------------------------------------------------------------

    Paragraph (b) of the proposed rule makes clear that, in compliance 
with Rule 201, in the event a covered security experiences a decrease 
in price of 10% or more, as determined by the listing market for the 
security, from the security's closing price on the listing market as of 
the end of regular trading hours on the prior day, except for certain 
permissible and short exempt orders,\20\ Exchange systems will not 
execute or display a short sale order with respect to that security at 
a price that is less than or equal to the current national best bid.
---------------------------------------------------------------------------

    \20\ See paragraphs (f) and (g) of proposed Rule 440B regarding 
the treatment of permissible and short exempt orders.
---------------------------------------------------------------------------

    Where the Exchange is the listing market for a covered security, 
Exchange systems will determine whether the short sale price test 
restrictions of Rule 201 have been triggered (i.e., whether a 
transaction in a covered security has occurred at a Trigger Price) and 
will notify the single plan processor responsible for consolidation of 
information for the covered security pursuant to Rule 603(b) of 
Regulation NMS.\21\ The Trigger Price of a covered security will not be 
calculated until the Exchange opens trading for that security. In 
circumstances where a covered security did not trade on the Exchange on 
the prior trading day (for example, due to a trading halt, trading 
suspension, or otherwise), the Exchange will base its determination of 
the Trigger Price on the last sale on the Exchange for that security on 
the most recent day on which the security did trade.
---------------------------------------------------------------------------

    \21\ 17 CFR 242.201(b)(3). See also Rule 201(a)(6) of Regulation 
SHO, which defines the term ``plan processor'' to have the same 
meaning as in Rule 600(b)(55) of Regulation NMS. 17 CFR 
242.600(b)(55). The single plan processors are ``exclusive 
processors'' as defined under Section 3(a)(22) of the Act. See 15 
U.S.C. 78c(a)(22).
---------------------------------------------------------------------------

    Once a Short Sale Price Test is triggered by the listing market, 
the Short Sale Price Test will remain in effect until the close of 
trading on the next trading day.\22\ If, however, the Exchange 
determines that the Short Sale Price Test for a covered security was 
triggered because of a clearly erroneous execution,\23\ the Exchange 
may lift the Short Sale Price Test before the Short Sale Period ends 
for securities for which the Exchange is the listing market or, for 
securities listed on another market, notify the other market of the 
Exchange's determination that the triggering transaction was a clearly 
erroneous execution. Similarly, if the Exchange determines that the 
prior day's closing price for a covered security for which the Exchange 
is the listing market is incorrect in Exchange systems and resulted in 
an incorrect determination that the short sale price restriction had 
been triggered, the Exchange may correct the prior day's closing price 
and lift the Short Sale Price Test before the Short Sale Period ends.
---------------------------------------------------------------------------

    \22\ The Short Sale Price Test will remain in effect at all 
times when quotation information and the national best bid is 
collected, processed and disseminated. This may extend beyond 
regular trading hours. T&M FAQs, supra note 16, at Q&A 2.1.
    \23\ Determination of a ``clearly erroneous'' transaction will 
be made in accordance with Exchange Rule 128.
---------------------------------------------------------------------------

    During the Short Sale Period, short sale orders that are limited to 
the national best bid or lower and short sale market orders will be re-
priced by Exchange systems one minimum price increment above the 
current national best bid (``Permitted Price'') to permit their 
execution at a price that is compliant with the Short Sale Price Test. 
Consistent with Rule 201,\24\ the Permitted Price for securities for 
which the national best bid is $1 or more is $.01 above the national 
best bid; the Permitted Price for securities for which the national 
best bid is below $1 is $.0001 above the national best bid.\25\
---------------------------------------------------------------------------

    \24\ Rule 201 Adopting Release, 75 FR 11232, 11247.
    \25\ 17 CFR 242.612.
---------------------------------------------------------------------------

    To reflect declines in the national best bid, the Exchange will 
continue to re-price a short sale order at the lowest Permitted Price 
down to the order's original limit price, or if a market order, until 
the order is filled. Non-displayed orders will also be re-priced upward 
to a Permitted Price to correspond with a rise in the national best 
bid.\26\ Also, during the Short Sale Period, immediate or cancel 
(``IOC'') orders will be executed to the extent possible at a Permitted 
Price and higher and then cancelled, and will not be re-priced. Inter-
market sweep orders not marked ``short exempt'' will be handled in the 
same manner as IOC orders.\27\ In addition, during the Short Sale 
Period, Exchange systems will mark certain designated market maker 
(``DMM'') sale interest as ``long'' or ``short'' on behalf of the DMM 
unit based on position information provided by the DMM unit.\28\ For 
such DMM interest, after a security has opened for trading, Exchange 
systems (i) will not execute or display such DMM short sale interest 
\29\ that is priced at or below the current national best bid and will 
cancel any such DMM interest, and (ii) will cancel any such DMM 
interest if the execution

[[Page 12168]]

of the full amount of all DMM sell interest at a price at or below the 
national best bid would result in a change in the DMM position from 
long to short.
---------------------------------------------------------------------------

    \26\ The following example illustrates the operation of Exchange 
systems in this situation. Assume the national best bid is 10.10 and 
a sell short order priced at 10.10 arrives at the Exchange during 
the Short Sale Period. The order will be re-priced to 10.11 and will 
rest on the limit order book. The national best bid then rises to 
10.11. If that short sale order was displayed on the offer side, 
that order will remain priced at 10.11. See note 30 infra and 
accompanying text. If the order was not displayed at the customer's 
instruction, then the order will be re-priced to 10.12 because it 
cannot be executed at the national best bid. See T&M FAQs, supra 
note 16, at Q&A 4.1.
    \27\ See Exchange Rule 13 for the definition of inter-market 
sweep order.
    \28\ Under Rule 200(g) of Regulation SHO, broker-dealers are 
responsible for proper marking of orders. However, with respect to 
certain trading by DMM units, Exchange systems will monitor DMM unit 
positions on a real-time basis during the trading day and will be 
responsible for order marking on behalf of DMM units for certain 
trading entered through Exchange systems. This will be done by 
receiving a position report prior to the opening of trading and 
updating DMM unit positions based on position information provided 
by the DMM unit and/or Exchange trade executions during the day. DMM 
units will be responsible for properly marking any DMM interest 
entered into Exchange systems for which the Exchange does not 
monitor or update the DMM unit's position. Exchange systems will 
treat such DMM interest that is marked short the same as how it 
treats other interest, as provided for in proposed Rule 440B(e), and 
will not cancel such DMM interest as provided for in proposed Rule 
440B(e)(2).
    \29\ See Exchange Rules 104(b) and 1000 regarding DMM trading 
algorithms and automatic execution.
---------------------------------------------------------------------------

    During the Short Sale Period, Exchange systems will execute and 
display a short sale order without regard to price if, at the time of 
initial display of the short sale order, the order was at a price above 
the then current national best bid.\30\ Un-displayed short sale orders 
that are entered into the Exchange's systems prior to the Short Sale 
Period will be re-priced as described above.
---------------------------------------------------------------------------

    \30\ See also 17 CFR 242.201(b)(1)(iii)(A).
---------------------------------------------------------------------------

    As permitted by Rule 201, during the Short Sale Period, Exchange 
systems will execute and display orders marked ``short exempt'' without 
regard to whether the order is at a Permitted Price.\31\ Exchange 
systems will also accept orders marked ``short exempt'' at any time 
when such systems are open for order entry, regardless of whether the 
Short Sale Price Test has been triggered.\32\
---------------------------------------------------------------------------

    \31\ See also 17 CFR 242.201(b)(1)(iii)(B).
    \32\ Exchange systems will also follow the guidance in the T&M 
FAQs. See supra note 16.
---------------------------------------------------------------------------

    In addition, the proposed amendments to Rule 440B will also provide 
for calculation of the Permitted Price and re-pricing of short sale 
orders with respect to any single-priced opening, re-opening or closing 
transaction during the Short Sale Period. Paragraph (h) of Rule 440B, 
as proposed, would provide that, with respect to the execution of short 
sale orders in a covered security in any single-priced opening, re-
opening or closing transaction during the Short Sale Period, Exchange 
systems will re-price short sale orders in a covered security as 
follows: (1) Opening--one minimum price increment above the national 
best bid at 9:30 a.m.; (2) Re-opening following a halt or pause in 
trading--one minimum price increment above the last published Exchange 
bid prior to such halt or pause; and (3) Closing--one minimum price 
increment above the last published Exchange bid prior to the close.\33\ 
For purposes of paragraph (h) the term ``minimum price increment'' 
shall mean $.01 for securities for which the national best bid or the 
published Exchange bid, as the case may be, is $1 or more, and $.0001 
for securities for which the national best bid or the published 
Exchange bid, as the case may be, is below $1.
---------------------------------------------------------------------------

    \33\ See Letter from James Brigagliano, Deputy Director, 
Division of Trading & Markets, SEC, to Janet McGinness, Senior Vice 
President and Secretary, NYSE Euronext, February 7, 2011.
---------------------------------------------------------------------------

    Paragraph (h) of Rule 440B, as proposed, also provides that, during 
a Short Sale Period, Exchange systems will not execute a short sale 
order for a covered security in a single-priced opening transaction at 
or below the national best bid at 9:30 a.m.,\34\ and will not execute a 
short sale order for a covered security in a single-priced re-opening 
or closing transaction at or below the last published Exchange bid 
prior to a halt or pause in trading (in the case of a single-priced re-
opening transaction), or at or below the last published Exchange bid 
prior to the close (in the case of a single-priced closing 
transaction).
---------------------------------------------------------------------------

    \34\ Short sale orders designated for execution only at the 
opening will be cancelled if not executed at the opening. Other 
short sale orders will remain on the Display Book for execution 
during the trading day if at a Permitted Price or higher and may be 
repriced throughout the day, consistent with proposed Rule 440B(e).
---------------------------------------------------------------------------

    The Exchange is also proposing changes to the Supplementary 
Material to Rule 440B. First, in .11, the Exchange is proposing to 
delete an outdated reference to Rule 440B(c). Second, the Exchange is 
proposing to amend .12 to add language permitting orders to be marked 
``short exempt'' in accordance with Rule 200(g)(2) and Rule 201 of 
Regulation SHO. Under amended .12, an order may be marked ``short 
exempt'' if the broker-dealer had a reasonable basis for believing that 
the order meets one of the exceptions specified in Rule 201(d) of 
Regulation SHO.\35\ An order may also be marked ``short exempt'' if it 
is entered during a Short Sale Period and meets the conditions 
specified in Rule 201(c) of Regulation SHO.\36\
---------------------------------------------------------------------------

    \35\ 17 CFR 242.201(d); T&M FAQs, supra note 16, at Q&A 5.4.
    \36\ 17 CFR 242.201(c); see also T&M FAQs, supra note 16, at Q&A 
4.2 and 5.5.
---------------------------------------------------------------------------

    Finally, the Exchange also proposes to amend its Rule 900 regarding 
its Off-Hours Trading Facility to apply Rule 440B (including the short 
sale price test restrictions of Rule 201) to transactions in the Off-
Hours Trading Facility (by deleting the current exclusion for Rule 
440B). An obsolete reference to the Intermarket Trading System 
(``ITS'') in Rule 900(b) will also be deleted.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\37\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\38\ in particular, in that it is designed to, among 
other things, prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. The proposal is designed to 
implement the provisions of Rule 201 of Regulation SHO by establishing, 
maintaining and enforcing written policies and procedures reasonably 
designed to prevent the execution or display of a short sale order of a 
covered security in violation of the Short Sale Price Test established 
in that rule. To that end, the proposed rule change will, among other 
things, establish the Exchange's procedures regarding the execution and 
display of permissible orders during the Short Sale Period, and the 
execution of orders marked ``short exempt.''
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f(b).
    \38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

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

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

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

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \39\ and Rule 19b-4(f)(6) thereunder.\40\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
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, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \41\ and Rule 
19b-4(f)(6)(iii) thereunder.\42\
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    \39\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \40\ 17 CFR 240.19b-4(f)(6).
    \41\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \42\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \43\ normally 
does not

[[Page 12169]]

become operative prior to 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\44\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission hereby 
grants the request.\45\ Waiving the 30-day operative delay will allow 
the Exchange to implement the proposed amendments by February 28, 2011, 
which, as noted by the Exchange, is the compliance date for amendments 
to Regulation SHO under the Act. By waiving the operative delay, the 
Exchange will be able to comply with the amendments to Regulation SHO 
by February 28, 2011. Therefore, the Commission believes it is 
consistent with the protection of investors and the public interest to 
waive the 30-day operative delay and designates the proposal as 
operative upon filing.
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    \43\ 17 CFR 240.19b-4(f)(6).
    \44\ 17 CFR 240.19b-4(f)(6)(iii).
    \45\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2011-05 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2011-05. 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 (http://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 20549-1090. Copies of the filing will also be available 
for inspection and copying at the NYSE's principal office and on its 
Internet Web site at http://www.nyse.com. All comments received will be 
posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2011-05 and should be submitted on 
or before March 25, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4895 Filed 3-3-11; 8:45 am]
BILLING CODE 8011-01-P