Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Rule 17 To Codify Inbound Routing Functions Performed by Its Affiliate Broker-Dealer, Archipelago Securities LLC, 38232-38235 [2011-16224]

Download as PDF mstockstill on DSK4VPTVN1PROD with NOTICES 38232 Federal Register / Vol. 76, No. 125 / Wednesday, June 29, 2011 / Notices Act,10 in that it is designed 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, in general, to protect investors and the public interest. While the Exchange has proposed to reduce the minimum size of the NGC, it has not proposed any other changes to the composition of the committee or the scope or exercise of its responsibilities. In its filing, the Exchange affirmatively represented that the NGC ‘‘will continue to be able to appropriately perform its functions’’ despite the reduction in minimum required size.11 The Commission further finds that the proposal, as modified by Amendment No. 1, is consistent with the requirements of Section 6(b)(3) of the Act,12 which requires that one or more directors of an exchange shall be representative of issuers and investors and not be associated with a member of the exchange, broker or dealer. In particular, the Commission notes that the Exchange will continue to provide for the fair representation of C2 Trading Permit Holders in the selection of directors and the administration of the Exchange consistent with Section 6(b)(3) of the Act 13 following this rule change. Specifically, the C2 Bylaws will continue to require that at least thirty percent of the directors on the C2 Board be Industry Directors and that at least twenty percent of C2’s directors be Representative Directors elected by permit holders.14 Further, the NGC will continue to include both Industry and Non-Industry Directors (including a majority of Non-Industry Directors) and have an Industry-Director Subcommittee that is composed of all of the Industry Directors serving on the Committee. Representative Directors will continue to be nominated (or otherwise selected through a petition process) by the Industry-Director Subcommittee. Additionally, C2 Trading Permit Holders will continue to be able to nominate alternative Representative Director candidates to those nominated by the Industry Director Subcommittee, in which case a Run-off Election will be held in which C2’s Trading Permit Holders vote to determine which candidates will be elected to the C2 Board to serve as Representative Directors. Furthermore, the Commission notes that the Exchange’s proposal to 10 15 U.S.C. 78f(b)(5). 11 See Notice, supra note 4, at 27112. 12 15 U.S.C. 78f(b)(3). 13 15 U.S.C. 78f(b)(3). 14 See Section 3.2 of the C2 Bylaws (defining ‘‘Representative Director’’). VerDate Mar<15>2010 17:48 Jun 28, 2011 Jkt 223001 reduce the minimum size of its NGC is consistent with a proposal that the Commission previously approved for another self-regulatory organization in which that self-regulatory organization reduced the minimum size of its nominating and governance committee from six to four members.15 Finally, the Exchange has represented that, although the proposed rule change would permit the Exchange to appoint a five-person NGC and the Exchange may elect to do so in the future, it is the current intention of the Exchange to appoint a six-person NGC.16 IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,17 that the proposed rule change (SR–C2–2011– 012), as modified by Amendment No. 1, be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Cathy H. Ahn, Deputy Secretary. [FR Doc. 2011–16243 Filed 6–28–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–64729; File No. SR–NYSE– 2011–24] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Rule 17 To Codify Inbound Routing Functions Performed by Its Affiliate Broker-Dealer, Archipelago Securities LLC June 23, 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 June 16, 2011, New York Stock Exchange LLC (the ‘‘Exchange’’ or ‘‘NYSE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have 15 See Securities Exchange Act Release No. 54494 (September 25, 2006), 71 FR 58023 (October 2, 2006) (SR–CHX–2006–23) (approving reduction of the Chicago Stock Exchange’s Nominating and Governance Committee from six directors to four directors). See also Article II, Section 3 of the Bylaws of the Chicago Stock Exchange, Inc. (providing for a Nominating and Governance Committee with four directors). 16 See Notice, supra note 4, at 27112. 17 15 U.S.C. 78s(b)(2). 18 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 been prepared by NYSE. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend NYSE Rule 17 to codify inbound routing functions performed by its affiliate broker-dealer, Archipelago Securities LLC (‘‘Arca Securities’’). The text of the proposed rule change is available at the Exchange’s principal office, at http:// www.nyse.com, at the Commission’s Public Reference Room, and at the Commission’s Web site at http:// www.sec.gov. 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 The Exchange proposes to amend NYSE Rule 17 to codify inbound routing functions performed by its affiliate broker-dealer, Arca Securities, which have previously been approved by the Commission.3 Background—Arca Securities Functions as Routing Broker Arca Securities currently is the primary outbound and inbound routing broker for NYSE. The outbound routing function for NYSE is governed by NYSE Rules 13 and 17.4 These rules permit NYSE to utilize Arca Securities to route orders to an away market center for execution whenever such routing is 3 The Exchange’s affiliates, NYSE Amex LLC (‘‘NYSE Amex’’) and NYSE Arca, Inc. (‘‘NYSE Arca’’), are proposing substantially similar rule changes. See SR–NYSEAmex–2011–39 and SR– NYSEArca–2011–38. 4 See Securities Exchange Act Release No. 55590 (April 5, 2007), 72 FR 18707 (April 13, 2007) (SR– NYSE–2007–29). E:\FR\FM\29JNN1.SGM 29JNN1 Federal Register / Vol. 76, No. 125 / Wednesday, June 29, 2011 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES required by Exchange Rules and federal securities laws.5 The inbound routing function of Arca Securities currently is governed by pilot programs. In September 2008, the Commission approved a pilot program that permitted Arca Securities, acting as the outbound router for NYSE Arca, Inc., to route PO Plus Orders to NYSE.6 The pilot was thereafter expanded to include all ‘‘NYSE Arca order types approved or implemented on or after’’ July 7, 2009,7 and an additional pilot was established to permit Arca Securities to route orders from NYSE Amex to NYSE.8 The pilots were extended and are currently scheduled to expire on September 30, 2011.9 The terms of the inbound routing pilots are generally set forth in the Commission’s approval orders, rather than rule text (except as noted below).10 The terms of the pilots are as follows: The Exchange and the Financial Industry Regulatory Authority (‘‘FINRA’’) have entered into a Rule 17d–2 agreement pursuant to which FINRA is allocated regulatory responsibilities to review Arca Securities’ compliance with certain Exchange rules. The Exchange, however, retains ultimate responsibility for enforcing its rules with respect to Arca Securities. NYSE Regulation monitors Arca Securities for compliance with the Exchange’s trading rules and collects 5 See id. NYSE Rules 13 and 17 were thereafter amended in 2008 to permit not only Arca Securities but also unaffiliated third-party broker-dealers to perform the outbound routing function, which serves as a risk management function in the event of a system malfunction or failure. See Securities Exchange Act Release No. 57870 (May 27, 2008), 73 FR 31526 (June 2, 2008) (SR–NYSE–2008–37). As such, Rule 17 currently refers generically to ‘‘Routing Broker(s),’’ rather than just Arca Securities. 6 See Securities Exchange Act Release No. 58680 (September 29, 2008), 73 FR 58283 (October 6, 2008) (SR–NYSE–2008–76). 7 See Securities Exchange Act Release No. 60255 (July 7, 2009), 74 FR 34065 (July 14, 2009) (SR– NYSE–2009–58). 8 See Securities Exchange Act Release No. 59011 (November 24, 2008), 73 FR 73360 (December 2, 2008) (SR–NYSE–2008–122). 9 See Securities Exchange Act Release Nos. 60752 (September 30, 2009), 74 FR 51641 (October 7, 2009) (SR–NYSE–2009–101) (extending pilot from September 29, 2009 to December 31, 2009); 61268 (December 31, 2009), 75 FR 1104 (January 8, 2010) (SR–NYSE–2009–128) (extending pilot from December 31, 2009 to March 31, 2010); 61864 (March 31, 2010), 75 FR 17814 (April 7, 2010) (SR– NYSE–2010–27) (extending pilot from March 31, 2010 to September 30, 2010); 62832 (September 2, 2010), 75 FR 55391 (September 10, 2010) (SR– NYSE–2010–64) (extending pilot from September 30, 2010 to March 31, 2011); and 64013 (March 2, 2011), 76 FR 12774 (March 8, 2011) (SR–NYSE– 2011–08) (extending pilot from March 31, 2011 to September 30, 2011). 10 See supra note 7. VerDate Mar<15>2010 17:48 Jun 28, 2011 Jkt 223001 and maintains certain related information. Specifically, NYSE Regulation collects and maintains the following information of which NYSE Regulation staff becomes aware— namely, all alerts, complaints, investigations and enforcement actions where Arca Securities is identified as a participant that has potentially violated Exchange or applicable SEC rules—in an easily accessible manner so as to facilitate any review conducted by the SEC’s Office of Compliance Inspections and Examination. NYSE Regulation has agreed with the Exchange that it will provide a report to the Exchange’s Chief Regulatory Officer, on a quarterly basis, that (i) Quantifies all alerts (of which NYSE Regulation is aware) that identify Arca Securities as a participant that has potentially violated Exchange or SEC rules, and (ii) quantifies the number of all investigations that identify Arca Securities as a participant that has potentially violated Exchange or Commission rules. NYSE Euronext, as parent of the Exchange, was obligated to adopt a rule requiring it to establish and maintain procedures and internal controls reasonably designed to ensure that Arca Securities does not develop or implement changes to its system, based on non-public information obtained regarding planned changes to the Exchange’s systems as a result of its affiliation with the Exchange, until such information is available generally to similarly situated members of the Exchange.11 Since the initiation of the inbound routing pilot in 2008, the Exchange in 2010 entered into a comprehensive Regulatory Services Agreement (‘‘RSA’’) with FINRA that, among other things, allocated to FINRA responsibility for the functions noted above that NYSE Regulation previously performed with respect to Arca Securities (e.g., monitoring Arca Securities’ compliance with the Exchange’s trading rules).12 As a result of this RSA and the Rule 17d– 2 agreement, the only regulatory functions related to Arca Securities that remain with NYSE Regulation are the provision to FINRA of the exceptions noted above of which NYSE Regulation becomes aware (e.g., alerts involving Arca Securities) and the receipt of the 11 See supra note 7. See also NYSE Rule 2B. Exchange notes that FINRA reviews both inbound and outbound routing via Arca Securities pursuant to the 17d–2 agreement and the RSA. The Exchange will review the terms of the RSA in connection with this proposed rule change, and will amend it to reflect the specific terms of this filing. 12 The PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 38233 quarterly report noted above, which is now produced by FINRA. Arca Securities was also previously engaged in certain odd-lot and subpenny transactions as part of its routing function for the Exchange.13 These functions were implemented on a permanent basis as part of the same proposed rule change implementing the outbound routing functions.14 As a result of subsequent rule changes, however, Arca Securities no longer performs these functions.15 Proposed Rule Change In order to provide more clarity and transparency to all of the functions that Arca Securities performs on behalf of the Exchange, NYSE proposes to add text to Rule 17 to describe the inbound routing functions. By doing so, the Exchange would establish a single, central location in its Rules describing all routing broker functions, including both inbound and outbound routing. Specifically, the existing text of Rule 17 concerning Routing Brokers’ outbound routing function, including with respect to Arca Securities, would be redesignated as new Rule 17(c)(1). The Exchange proposes to add new Rule 17(c)(2) to add text describing Arca Securities’ inbound routing functions. The rule text in paragraph (c)(2) would be substantially the same as the language set forth in the Commission notices applicable to the Exchange and virtually identical to the inbound router rule text already implemented for another exchange.16 In this regard, the rule text would track the terms of the inbound routing pilot noted above (and as set forth in the rule filings), with the following exceptions. First, the rule text would reflect that certain regulatory functions are now carried out by FINRA on behalf of NYSE Regulation, rather than by NYSE Regulation directly. Second, the rule text would require 13 See supra note 5. No rule text was added to the NYSE Rules to describe these functions. 14 See id. 15 NYSE has modified its electronic trading system in order to accommodate away market center executions in odd-lots and sub-pennies. See Securities Exchange Act Release No. 62578 (July 27, 2010), 75 FR 45185 (August 2, 2010) (SR–NYSE– 2010–43) (amending various NYSE rules to incorporate the receipt and execution of odd-lot interest into the round lot market and decommission the use of Odd-lot System); Securities Exchange Act Release No. 60915 (November 3, 2009), 74 FR 57724 (November 9, 2009) (SR–NYSE–2009–107) (deleting Supplementary Material .20 from NYSE Rule 62 because Exchange technology was modified to quote and execute bids/offers priced below $1.00 per share in sub-penny increments of $0.0001). 16 See BATS Rule 2.12. See also Securities Exchange Act Release No. 62901 (September 13, 2010), 75 FR 57097 (September 17, 2010) (SR– BATS–2010–024). E:\FR\FM\29JNN1.SGM 29JNN1 38234 Federal Register / Vol. 76, No. 125 / Wednesday, June 29, 2011 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES procedures and controls that are reasonably designed to prevent Arca Securities from receiving any benefit, taking any action or engaging in any activity, based on non-public information regarding planned changes to Exchange systems obtained as a result of its affiliation with the Exchange, until such information is available generally to similarly situated member organizations of the Exchange, in connection with the provision of inbound order routing to the Exchange.17 In comparison, the current language from the inbound routing pilot requires procedures and controls that are reasonably designed to ensure that Arca Securities does not develop or implement changes to its system, based on non-public information obtained regarding planned changes to the Exchange’s systems as a result of its affiliation with the Exchange, until such information is available generally to similarly situated members of the Exchange. Additionally, the Exchange proposes certain technical changes to NYSE Rule 17(c), which governs Arca Securities’ outbound routing functions, to align it with the changes proposed herein. The Exchange also proposes to include specific rule text to codify the current date upon which the inbound routing pilots are set to expire—September 30, 2011. 2. Statutory Basis The proposed rule change is consistent with Section 6(b) 18 of the Act, in general, and furthers the objectives of Section 6(b)(5),19 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, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange believes that the proposed rule change, which would add specific rule text for routing functionality that has already been approved in substance by the Commission for the Exchange, would enhance the clarity and transparency surrounding such functionality, 17 The Exchange notes that the text proposed in Rule 17(c)(2)(B) would make clear that the Exchange may furnish to Arca Securities the same information on the same terms that the Exchange makes available in the normal course of business to any other member organization. 18 15 U.S.C. 78f(b). 19 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 17:48 Jun 28, 2011 Jkt 223001 including the responsibilities and obligations attendant therewith, while also reflecting the Exchange’s ongoing efforts to effectively address the concerns previously identified by the Commission regarding the potential for informational advantages favoring Arca ` Securities vis-a-vis other non-affiliated Exchange members. The Exchange also believes that the proposed rule change would support the principles of Section 11A(a)(1) of the Act 20 in that it seeks to assure economically efficient execution of securities transactions. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposed rule change: (i) Does not significantly affect the protection of investors or the public interest; (ii) does not impose any significant burden on competition; and (iii) does not become operative for 30 days after the date of the filing, 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) of the Act 21 and Rule 19b– 4(f)(6) thereunder.22 A proposed rule change filed under 19b–4(f)(6) normally may not become operative prior to 30 days after the date of filing.23 However, Rule 19b– 4(f)(6)(iii) 24 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The 20 15 U.S.C. 78k–1(a)(1). U.S.C. 78s(b)(3)(A). 22 17 CFR 240.19b–4(f)(6). 23 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 19b–4(f)(6)(iii) requires that a self-regulatory organization submit to the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of 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. 24 Id. 21 15 PO 00000 Frm 00127 Fmt 4703 Sfmt 4703 Exchange requests that the Commission waive the 30-day operative delay. The Exchange believes that waiver of the 30day operative delay would provide more clarity and transparency in its rule text concerning all of the functions that Arca Securities performs on behalf of the Exchange without undue delay. In addition, the Exchange notes that the proposal is consistent with the rules of another national securities exchange. For these reason, the Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, and designates the proposed rule change to be operative upon filing with the Commission.25 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. 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 rulecomments@sec.gov. Please include File Number SR–NYSE–2011–24 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–2011–24. 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 25 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). E:\FR\FM\29JNN1.SGM 29JNN1 Federal Register / Vol. 76, No. 125 / Wednesday, June 29, 2011 / Notices 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–NYSE– 2011–24 and should be submitted on or before July 20, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Cathy H. Ahn, Deputy Secretary. [FR Doc. 2011–16224 Filed 6–28–11; 8:45 am] SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Adopting New NYSE Arca Equities Rule 7.41 to Codify Outbound and Inbound Routing Functions Performed by Its Affiliate Brokerdealer, Archipelago Securities LLC mstockstill on DSK4VPTVN1PROD with NOTICES June 23, 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 June 16, 2011, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) 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 NYSE Arca. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. VerDate Mar<15>2010 17:48 Jun 28, 2011 Jkt 223001 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. 1. Purpose [Release No. 34–64730; File No. SR– NYSEArca–38] 1 15 The Exchange proposes new NYSE Arca Equities Rule 7.41 to codify outbound and inbound routing functions performed by its affiliate broker-dealer, Archipelago Securities LLC (‘‘Arca Securities’’). The text of the proposed rule change is available at the Exchange’s principal office, at http:// www.nyse.com, at the Commission’s Public Reference Room, and at the Commission’s Web site at http:// www.sec.gov. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P 26 17 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes new NYSE Arca Equities Rule 7.41 to codify outbound and inbound routing functions performed by its affiliate broker-dealer, Arca Securities, which have previously been approved by the Commission.3 Background—Arca Securities Functions as Routing Broker Arca Securities currently is the primary outbound and inbound routing broker for NYSE Arca. The terms of the outbound routing function for NYSE Arca are generally set forth in the Commission’s approval orders,4 rather than rule text,5 and permit NYSE Arca to utilize Arca Securities to route orders 3 The Exchange’s affiliates, New York Stock Exchange, LLC (‘‘NYSE’’) and NYSE Amex LLC (‘‘NYSE Amex’’), are proposing substantially similar rule changes. See SR–NYSE–2011–24 and SR– NYSEAmex-2011–39. 4 See Securities Exchange Act Release No. 52497 (September 22, 2005), 70 FR 56949, 56952–56953 (September 29, 2005) (SR–PCX–2005–90). 5 NYSE Arca Equities Rule 7.31 sets forth order types available for trading on the Exchange, including those that may route to another market center, and NYSE Arca Equities Rule 1.1(qq) defines the term ‘‘Routing Agreement.’’ PO 00000 Frm 00128 Fmt 4703 Sfmt 4703 38235 to an away market center for execution whenever such routing is required by Exchange Rules and federal securities laws. The terms of the outbound routing function of Arca Securities generally are as follows: Arca Securities operates and is regulated as a facility of the Exchange, subject to and consistent with Section 6 of the Securities Exchange Act of 1934 (‘‘Act’’). A self-regulatory organization (‘‘SRO’’) unaffiliated with the Exchange or any of its affiliates (currently the Financial Industry Regulatory Authority or ‘‘FINRA’’), carries out oversight and enforcement responsibilities as the Designated Examining Authority (‘‘DEA’’) designated by the Commission pursuant to Rule 17–1 of the Act with the responsibility for examining Arca Securities for compliance with the applicable financial responsibility rules. The agreement between the Exchange and FINRA pursuant to Rule 17–2 under the Act allocates to FINRA the responsibility to receive regulatory reports from Arca Securities, to examine Arca Securities for compliance and to enforce compliance by Arca Securities with the Act, the rules and regulations thereunder and FINRA rules, and to carry out other specified regulatory functions with respect to Arca Securities. ETP Holders’ use of Arca Securities to route orders to another market center from the Exchange is optional.6 Arca Securities will not engage in any business other than its outbound routing function (including, in that function, the self-clearing functions that it currently performs for trades with respect to orders routed to other market centers) and other activities approved by the Commission. The operation of Arca Securities as a facility of the Exchange providing outbound routing services is subject to Exchange and Commission oversight and the Exchange must file with the Commission rule changes and fees relating to Arca Securities. The inbound routing function of Arca Securities currently is governed by a pilot program established to permit Arca Securities to route orders from NYSE and NYSE Amex to NYSE Arca.7 The 6 An ETP Holder that does not want to use Arca Securities may use other routers to route orders to other market centers or choose to send an order to the Exchange that, if not executable on the Exchange, will be cancelled and returned to the ETP Holder, at which time the ETP Holder could choose to route the order to another market itself. 7 See Securities Exchange Act Release No. 58681 (September 29, 2008), 73 FR 58285 (October 6, 2008) (SR–NYSEArca–2008–90). See also Securities Exchange Act Release No. 59010 (November 24, E:\FR\FM\29JNN1.SGM Continued 29JNN1

Agencies

[Federal Register Volume 76, Number 125 (Wednesday, June 29, 2011)]
[Notices]
[Pages 38232-38235]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16224]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64729; File No. SR-NYSE-2011-24]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending NYSE Rule 17 To Codify Inbound Routing Functions Performed by 
Its Affiliate Broker-Dealer, Archipelago Securities LLC

 June 23, 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 June 16, 2011, New York Stock Exchange LLC (the ``Exchange'' 
or ``NYSE'') 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 NYSE. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to amend NYSE Rule 17 to codify inbound 
routing functions performed by its affiliate broker-dealer, Archipelago 
Securities LLC (``Arca Securities''). The text of the proposed rule 
change is available at the Exchange's principal office, at http://www.nyse.com, at the Commission's Public Reference Room, and at the 
Commission's Web site at http://www.sec.gov.

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
    The Exchange proposes to amend NYSE Rule 17 to codify inbound 
routing functions performed by its affiliate broker-dealer, Arca 
Securities, which have previously been approved by the Commission.\3\
---------------------------------------------------------------------------

    \3\ The Exchange's affiliates, NYSE Amex LLC (``NYSE Amex'') and 
NYSE Arca, Inc. (``NYSE Arca''), are proposing substantially similar 
rule changes. See SR-NYSEAmex-2011-39 and SR-NYSEArca-2011-38.
---------------------------------------------------------------------------

Background--Arca Securities Functions as Routing Broker

    Arca Securities currently is the primary outbound and inbound 
routing broker for NYSE. The outbound routing function for NYSE is 
governed by NYSE Rules 13 and 17.\4\ These rules permit NYSE to utilize 
Arca Securities to route orders to an away market center for execution 
whenever such routing is

[[Page 38233]]

required by Exchange Rules and federal securities laws.\5\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 55590 (April 5, 
2007), 72 FR 18707 (April 13, 2007) (SR-NYSE-2007-29).
    \5\ See id. NYSE Rules 13 and 17 were thereafter amended in 2008 
to permit not only Arca Securities but also unaffiliated third-party 
broker-dealers to perform the outbound routing function, which 
serves as a risk management function in the event of a system 
malfunction or failure. See Securities Exchange Act Release No. 
57870 (May 27, 2008), 73 FR 31526 (June 2, 2008) (SR-NYSE-2008-37). 
As such, Rule 17 currently refers generically to ``Routing 
Broker(s),'' rather than just Arca Securities.
---------------------------------------------------------------------------

    The inbound routing function of Arca Securities currently is 
governed by pilot programs. In September 2008, the Commission approved 
a pilot program that permitted Arca Securities, acting as the outbound 
router for NYSE Arca, Inc., to route PO Plus Orders to NYSE.\6\ The 
pilot was thereafter expanded to include all ``NYSE Arca order types 
approved or implemented on or after'' July 7, 2009,\7\ and an 
additional pilot was established to permit Arca Securities to route 
orders from NYSE Amex to NYSE.\8\ The pilots were extended and are 
currently scheduled to expire on September 30, 2011.\9\ The terms of 
the inbound routing pilots are generally set forth in the Commission's 
approval orders, rather than rule text (except as noted below).\10\ The 
terms of the pilots are as follows:
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    \6\ See Securities Exchange Act Release No. 58680 (September 29, 
2008), 73 FR 58283 (October 6, 2008) (SR-NYSE-2008-76).
    \7\ See Securities Exchange Act Release No. 60255 (July 7, 
2009), 74 FR 34065 (July 14, 2009) (SR-NYSE-2009-58).
    \8\ See Securities Exchange Act Release No. 59011 (November 24, 
2008), 73 FR 73360 (December 2, 2008) (SR-NYSE-2008-122).
    \9\ See Securities Exchange Act Release Nos. 60752 (September 
30, 2009), 74 FR 51641 (October 7, 2009) (SR-NYSE-2009-101) 
(extending pilot from September 29, 2009 to December 31, 2009); 
61268 (December 31, 2009), 75 FR 1104 (January 8, 2010) (SR-NYSE-
2009-128) (extending pilot from December 31, 2009 to March 31, 
2010); 61864 (March 31, 2010), 75 FR 17814 (April 7, 2010) (SR-NYSE-
2010-27) (extending pilot from March 31, 2010 to September 30, 
2010); 62832 (September 2, 2010), 75 FR 55391 (September 10, 2010) 
(SR-NYSE-2010-64) (extending pilot from September 30, 2010 to March 
31, 2011); and 64013 (March 2, 2011), 76 FR 12774 (March 8, 2011) 
(SR-NYSE-2011-08) (extending pilot from March 31, 2011 to September 
30, 2011).
    \10\ See supra note 7.
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    The Exchange and the Financial Industry Regulatory Authority 
(``FINRA'') have entered into a Rule 17d-2 agreement pursuant to which 
FINRA is allocated regulatory responsibilities to review Arca 
Securities' compliance with certain Exchange rules. The Exchange, 
however, retains ultimate responsibility for enforcing its rules with 
respect to Arca Securities.
    NYSE Regulation monitors Arca Securities for compliance with the 
Exchange's trading rules and collects and maintains certain related 
information. Specifically, NYSE Regulation collects and maintains the 
following information of which NYSE Regulation staff becomes aware--
namely, all alerts, complaints, investigations and enforcement actions 
where Arca Securities is identified as a participant that has 
potentially violated Exchange or applicable SEC rules--in an easily 
accessible manner so as to facilitate any review conducted by the SEC's 
Office of Compliance Inspections and Examination.
    NYSE Regulation has agreed with the Exchange that it will provide a 
report to the Exchange's Chief Regulatory Officer, on a quarterly 
basis, that (i) Quantifies all alerts (of which NYSE Regulation is 
aware) that identify Arca Securities as a participant that has 
potentially violated Exchange or SEC rules, and (ii) quantifies the 
number of all investigations that identify Arca Securities as a 
participant that has potentially violated Exchange or Commission rules.
    NYSE Euronext, as parent of the Exchange, was obligated to adopt a 
rule requiring it to establish and maintain procedures and internal 
controls reasonably designed to ensure that Arca Securities does not 
develop or implement changes to its system, based on non-public 
information obtained regarding planned changes to the Exchange's 
systems as a result of its affiliation with the Exchange, until such 
information is available generally to similarly situated members of the 
Exchange.\11\
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    \11\ See supra note 7. See also NYSE Rule 2B.
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    Since the initiation of the inbound routing pilot in 2008, the 
Exchange in 2010 entered into a comprehensive Regulatory Services 
Agreement (``RSA'') with FINRA that, among other things, allocated to 
FINRA responsibility for the functions noted above that NYSE Regulation 
previously performed with respect to Arca Securities (e.g., monitoring 
Arca Securities' compliance with the Exchange's trading rules).\12\ As 
a result of this RSA and the Rule 17d-2 agreement, the only regulatory 
functions related to Arca Securities that remain with NYSE Regulation 
are the provision to FINRA of the exceptions noted above of which NYSE 
Regulation becomes aware (e.g., alerts involving Arca Securities) and 
the receipt of the quarterly report noted above, which is now produced 
by FINRA.
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    \12\ The Exchange notes that FINRA reviews both inbound and 
outbound routing via Arca Securities pursuant to the 17d-2 agreement 
and the RSA. The Exchange will review the terms of the RSA in 
connection with this proposed rule change, and will amend it to 
reflect the specific terms of this filing.
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    Arca Securities was also previously engaged in certain odd-lot and 
sub-penny transactions as part of its routing function for the 
Exchange.\13\ These functions were implemented on a permanent basis as 
part of the same proposed rule change implementing the outbound routing 
functions.\14\ As a result of subsequent rule changes, however, Arca 
Securities no longer performs these functions.\15\
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    \13\ See supra note 5. No rule text was added to the NYSE Rules 
to describe these functions.
    \14\ See id.
    \15\ NYSE has modified its electronic trading system in order to 
accommodate away market center executions in odd-lots and sub-
pennies. See Securities Exchange Act Release No. 62578 (July 27, 
2010), 75 FR 45185 (August 2, 2010) (SR-NYSE-2010-43) (amending 
various NYSE rules to incorporate the receipt and execution of odd-
lot interest into the round lot market and decommission the use of 
Odd-lot System); Securities Exchange Act Release No. 60915 (November 
3, 2009), 74 FR 57724 (November 9, 2009) (SR-NYSE-2009-107) 
(deleting Supplementary Material .20 from NYSE Rule 62 because 
Exchange technology was modified to quote and execute bids/offers 
priced below $1.00 per share in sub-penny increments of $0.0001).
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Proposed Rule Change
    In order to provide more clarity and transparency to all of the 
functions that Arca Securities performs on behalf of the Exchange, NYSE 
proposes to add text to Rule 17 to describe the inbound routing 
functions. By doing so, the Exchange would establish a single, central 
location in its Rules describing all routing broker functions, 
including both inbound and outbound routing.
    Specifically, the existing text of Rule 17 concerning Routing 
Brokers' outbound routing function, including with respect to Arca 
Securities, would be redesignated as new Rule 17(c)(1). The Exchange 
proposes to add new Rule 17(c)(2) to add text describing Arca 
Securities' inbound routing functions. The rule text in paragraph 
(c)(2) would be substantially the same as the language set forth in the 
Commission notices applicable to the Exchange and virtually identical 
to the inbound router rule text already implemented for another 
exchange.\16\ In this regard, the rule text would track the terms of 
the inbound routing pilot noted above (and as set forth in the rule 
filings), with the following exceptions. First, the rule text would 
reflect that certain regulatory functions are now carried out by FINRA 
on behalf of NYSE Regulation, rather than by NYSE Regulation directly. 
Second, the rule text would require

[[Page 38234]]

procedures and controls that are reasonably designed to prevent Arca 
Securities from receiving any benefit, taking any action or engaging in 
any activity, based on non-public information regarding planned changes 
to Exchange systems obtained as a result of its affiliation with the 
Exchange, until such information is available generally to similarly 
situated member organizations of the Exchange, in connection with the 
provision of inbound order routing to the Exchange.\17\ In comparison, 
the current language from the inbound routing pilot requires procedures 
and controls that are reasonably designed to ensure that Arca 
Securities does not develop or implement changes to its system, based 
on non-public information obtained regarding planned changes to the 
Exchange's systems as a result of its affiliation with the Exchange, 
until such information is available generally to similarly situated 
members of the Exchange.
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    \16\ See BATS Rule 2.12. See also Securities Exchange Act 
Release No. 62901 (September 13, 2010), 75 FR 57097 (September 17, 
2010) (SR-BATS-2010-024).
    \17\ The Exchange notes that the text proposed in Rule 
17(c)(2)(B) would make clear that the Exchange may furnish to Arca 
Securities the same information on the same terms that the Exchange 
makes available in the normal course of business to any other member 
organization.
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    Additionally, the Exchange proposes certain technical changes to 
NYSE Rule 17(c), which governs Arca Securities' outbound routing 
functions, to align it with the changes proposed herein. The Exchange 
also proposes to include specific rule text to codify the current date 
upon which the inbound routing pilots are set to expire--September 30, 
2011.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \18\ of 
the Act, in general, and furthers the objectives of Section 
6(b)(5),\19\ 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, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest. The Exchange believes that the 
proposed rule change, which would add specific rule text for routing 
functionality that has already been approved in substance by the 
Commission for the Exchange, would enhance the clarity and transparency 
surrounding such functionality, including the responsibilities and 
obligations attendant therewith, while also reflecting the Exchange's 
ongoing efforts to effectively address the concerns previously 
identified by the Commission regarding the potential for informational 
advantages favoring Arca Securities vis-[agrave]-vis other non-
affiliated Exchange members. The Exchange also believes that the 
proposed rule change would support the principles of Section 11A(a)(1) 
of the Act \20\ in that it seeks to assure economically efficient 
execution of securities transactions.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
    \20\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

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

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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days after the date of the filing, 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) of the Act \21\ and 
Rule 19b-4(f)(6) thereunder.\22\
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\23\ 
However, Rule 19b-4(f)(6)(iii) \24\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange requests that the 
Commission waive the 30-day operative delay. The Exchange believes that 
waiver of the 30-day operative delay would provide more clarity and 
transparency in its rule text concerning all of the functions that Arca 
Securities performs on behalf of the Exchange without undue delay. In 
addition, the Exchange notes that the proposal is consistent with the 
rules of another national securities exchange. For these reason, the 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
and designates the proposed rule change to be operative upon filing 
with the Commission.\25\
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    \23\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to 
the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of 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.
    \24\ Id.
    \25\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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.

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-2011-24 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-2011-24. 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

[[Page 38235]]

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-NYSE-2011-24 and should be submitted on or before July 
20, 2011.
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    \26\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16224 Filed 6-28-11; 8:45 am]
BILLING CODE 8011-01-P