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 Broker-dealer, Archipelago Securities LLC, 38235-38237 [2011-16225]
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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.
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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.’’
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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
38236
Federal Register / Vol. 76, No. 125 / Wednesday, June 29, 2011 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
pilot was extended and is currently
scheduled to expire on September 30,
2011.8 The terms of the inbound routing
pilot are generally set forth in the
Commission’s approval orders, rather
than rule text (except as noted below).9
The terms of the pilot 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
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
2008), 73 FR 73373 (December 2, 2008) (SR–
NYSEArca–2008–130).
8 See Securities Exchange Act Release Nos. 60750
(September 30, 2009), 74 FR 51635 (October 7,
2009) (SR–NYSEArca–2009–87) (extending pilot
from September 29, 2009 to December 31, 2009);
61247 (December 31, 2009), 75 FR 1096 (January 8,
2010) (SR–NYSEArca–2009–115) (extending pilot
from December 31, 2009 to March 31, 2010); 61813
(March 31, 2010), 75 FR 17459 (April 7, 2010) (SR–
NYSEArca–2010–19) (extending pilot from March
31, 2010 to September 30, 2010); 62883 (September
2, 2010), 75 FR 55382 (September 10, 2010) (SR–
NYSEArca–2010–82) (extending pilot from
September 30, 2010 to March 31, 2011); and 64042
(March 2, 2011), 76 FR 13440 (March 8, 2011) (SR–
NYSEArca–2011–06) (extending pilot from March
31, 2011 to September 30, 2011).
9 See supra note 9.
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17:48 Jun 28, 2011
Jkt 223001
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 ETP Holders of the
Exchange.10
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).11 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.
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 Arca proposes to
add NYSE Arca Equities Rule 7.41 to
define the term ‘‘Routing Broker’’ and
describe the outbound and inbound
routing functions. By doing so, the
Exchange would establish a single,
central location in its Rules describing
all routing broker functions, including
both outbound and inbound routing.
The proposed rule text in Rule 7.41
would be substantially the same as the
language set forth in the Commission
notices applicable to the Exchange and
virtually identical to rule text already
implemented for other exchanges.
In this regard, the rule text covering
outbound routing would be virtually
identical to the NYSE’s rule text
covering outbound routing by NYSE,12
and would track the terms of the
outbound routing language noted above.
In addition, the rule text covering
inbound routing would be virtually
10 See supra note 9. See also NYSE Arca Equities
Rule 14.3(e).
11 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.
12 See NYSE Rule 17(c).
PO 00000
Frm 00129
Fmt 4703
Sfmt 4703
identical to the BATS’ rule text covering
inbound routing by BATS, and would
track the terms of the inbound routing
pilot noted above (and as set forth in the
rule filings), with the following
exceptions.13 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 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 nonpublic 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
Exchange ETP Holders, in connection
with the provision of inbound order
routing to the Exchange.14 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 Exchange ETP
Holders. 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) 15 of the
Act, in general, and furthers the
objectives of Section 6(b)(5),16 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
13 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).
14 The Exchange notes that the text proposed in
Rule 7.41(c)(2) 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 ETP Holder.
15 15 U.S.C. 78f(b).
16 15 U.S.C. 78f(b)(5).
E:\FR\FM\29JNN1.SGM
29JNN1
Federal Register / Vol. 76, No. 125 / Wednesday, June 29, 2011 / Notices
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-a-vis other non-affiliated
NYSE Arca ETP Holders. The Exchange
also believes that the proposed rule
change would support the principles of
Section 11A(a)(1) of the Act 17 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 18 and Rule 19b–
4(f)(6) thereunder.19
A proposed rule change filed under
19b–4(f)(6) normally may not become
operative prior to 30 days after the date
of filing.20 However, Rule 19b–
mstockstill on DSK4VPTVN1PROD with NOTICES
17 15
U.S.C. 78k–1(a)(1).
U.S.C. 78s(b)(3)(A).
19 17 CFR 240.19b–4(f)(6).
20 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
18 15
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17:48 Jun 28, 2011
Jkt 223001
4(f)(6)(iii) 21 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 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.22
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:
38237
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, 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–
NYSEArca–2011–38 and should be
submitted on or before July 20, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–16225 Filed 6–28–11; 8:45 am]
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–NYSEArca–2011–38 on the
subject line.
BILLING CODE 8011–01–P
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–NYSEArca–2011–38. 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
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Include Text in Its
Options Rules Governing the Use of Its
Affiliate Broker-Dealer, Archipelago
Securities LLC for Outbound Routing
of Option Orders, and To Adopt Text in
Its Options Rules To Permit the
Exchange To Receive Inbound Routes
of Option Orders From Arca Securities,
Acting as the Outbound Router for
NYSE Amex LLC
Commission. The Exchange has satisfied this
requirement.
21 Id.
22 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).
PO 00000
Frm 00130
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64731; File No. SR–
NYSEArca–2011–39]
June 23, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
2317
E:\FR\FM\29JNN1.SGM
CFR 200.30–3(a)(12).
29JNN1
Agencies
[Federal Register Volume 76, Number 125 (Wednesday, June 29, 2011)]
[Notices]
[Pages 38235-38237]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16225]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64730; File No. SR-NYSEArca-38]
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 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, 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.
---------------------------------------------------------------------------
\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 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.
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 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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 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:
---------------------------------------------------------------------------
\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.''
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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
[[Page 38236]]
pilot was extended and is currently scheduled to expire on September
30, 2011.\8\ The terms of the inbound routing pilot are generally set
forth in the Commission's approval orders, rather than rule text
(except as noted below).\9\ The terms of the pilot are as follows:
---------------------------------------------------------------------------
\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, 2008), 73 FR
73373 (December 2, 2008) (SR-NYSEArca-2008-130).
\8\ See Securities Exchange Act Release Nos. 60750 (September
30, 2009), 74 FR 51635 (October 7, 2009) (SR-NYSEArca-2009-87)
(extending pilot from September 29, 2009 to December 31, 2009);
61247 (December 31, 2009), 75 FR 1096 (January 8, 2010) (SR-
NYSEArca-2009-115) (extending pilot from December 31, 2009 to March
31, 2010); 61813 (March 31, 2010), 75 FR 17459 (April 7, 2010) (SR-
NYSEArca-2010-19) (extending pilot from March 31, 2010 to September
30, 2010); 62883 (September 2, 2010), 75 FR 55382 (September 10,
2010) (SR-NYSEArca-2010-82) (extending pilot from September 30, 2010
to March 31, 2011); and 64042 (March 2, 2011), 76 FR 13440 (March 8,
2011) (SR-NYSEArca-2011-06) (extending pilot from March 31, 2011 to
September 30, 2011).
\9\ See supra note 9.
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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 ETP Holders of
the Exchange.\10\
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\10\ See supra note 9. See also NYSE Arca Equities Rule 14.3(e).
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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).\11\ 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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\11\ 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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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
Arca proposes to add NYSE Arca Equities Rule 7.41 to define the term
``Routing Broker'' and describe the outbound and inbound routing
functions. By doing so, the Exchange would establish a single, central
location in its Rules describing all routing broker functions,
including both outbound and inbound routing. The proposed rule text in
Rule 7.41 would be substantially the same as the language set forth in
the Commission notices applicable to the Exchange and virtually
identical to rule text already implemented for other exchanges.
In this regard, the rule text covering outbound routing would be
virtually identical to the NYSE's rule text covering outbound routing
by NYSE,\12\ and would track the terms of the outbound routing language
noted above. In addition, the rule text covering inbound routing would
be virtually identical to the BATS' rule text covering inbound routing
by BATS, and would track the terms of the inbound routing pilot noted
above (and as set forth in the rule filings), with the following
exceptions.\13\ 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 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 Exchange ETP Holders, in connection
with the provision of inbound order routing to the Exchange.\14\ 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 Exchange ETP Holders. 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.
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\12\ See NYSE Rule 17(c).
\13\ 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).
\14\ The Exchange notes that the text proposed in Rule
7.41(c)(2) 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 ETP
Holder.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \15\ of
the Act, in general, and furthers the objectives of Section
6(b)(5),\16\ 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
[[Page 38237]]
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 NYSE Arca ETP Holders. The Exchange
also believes that the proposed rule change would support the
principles of Section 11A(a)(1) of the Act \17\ in that it seeks to
assure economically efficient execution of securities transactions.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
\17\ 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 \18\ and
Rule 19b-4(f)(6) thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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.\20\
However, Rule 19b-4(f)(6)(iii) \21\ 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.\22\
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\20\ 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.
\21\ Id.
\22\ 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-NYSEArca-2011-38 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-NYSEArca-2011-38. 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, 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-
NYSEArca-2011-38 and should be submitted on or before July 20, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16225 Filed 6-28-11; 8:45 am]
BILLING CODE 8011-01-P