Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Amex Options Rule 985NY To Permit Qualified Contingent Cross Orders To Be Electronically Submitted to the NYSE Amex System From the Floor of the Exchange for Potential Execution, 49812-49815 [2011-20388]
Download as PDF
49812
Federal Register / Vol. 76, No. 155 / Thursday, August 11, 2011 / Notices
The Exchange believes that its
proposal to pay a higher rebate for
transactions in equity options in the
Designated Options, as compared to the
other Select Symbols, is equitable and
not unfairly discriminatory because the
Exchange would uniformly pay the
same Customer Complex Order Rebate
for Adding Liquidity for all Customer
Complex Orders in all Designated
Options. The Exchange believes that
waiving the Customer Complex Order
Fee for Removing Liquidity for the
following additional symbols: BAC, C,
GLD, INTC, JPM, SLV, XLF and F is
equitable and not unfairly
discriminatory because the Exchange is
uniformly waiving the Customer
Complex Order Fee for Removing
Liquidity.
The Exchange operates in a highly
competitive market comprised of nine
U.S. options exchanges in which
sophisticated and knowledgeable
market participants can readily send
order flow to competing exchanges if
they deem fee levels at a particular
exchange to be excessive. The Exchange
believes that the Complex Order fees
and rebates it pays/assesses must be
competitive with fees and rebates in
place on other exchanges. The Exchange
believes that this competitive
marketplace impacts the fees and
rebates present on the Exchange today
and influences the proposals set forth
above.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.11 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
11 15
U.S.C. 78s(b)(3)(A)(ii).
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purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Elizabeth M. Murphy,
Secretary.
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:
[FR Doc. 2011–20376 Filed 8–10–11; 8:45 am]
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Phlx–2011–103 on the
subject line.
Self-Regulatory Organizations; NYSE
Amex LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending NYSE Amex
Options Rule 985NY To Permit
Qualified Contingent Cross Orders To
Be Electronically Submitted to the
NYSE Amex System From the Floor of
the Exchange for Potential Execution
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–Phlx-2011–103. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of
10 a.m. and 3 p.m. Copies of 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–Phlx–
2011–103 and should be submitted on
or before September 1, 2011.
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65047; File No. SR–
NYSEAmex–2011–56]
August 5, 2011.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on August 1,
2011, NYSE Amex LLC (the ‘‘Exchange’’
or ‘‘NYSE Amex’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
NYSE Amex Options Rule 985NY to
permit Qualified Contingent Cross
Orders (‘‘QCCs’’) to be electronically
submitted to the NYSE Amex System
from the Floor of the Exchange for
potential [sic]. The text of the proposed
rule change is available at the
Exchange’s Web site at https://
www.nyse.com, on the Commission’s
Web site at https://www.sec.gov, at the
Exchange’s principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 76, No. 155 / Thursday, August 11, 2011 / Notices
The Exchange recently adopted rules
that permit ATP Holders to submit
QCCs electronically from off the Floor
through the NYSE Amex System.6 The
QCC permits an NYSE Amex ATP
Holder to effect a qualified contingent
trade (‘‘QCT’’) in a Regulation NMS
stock and cross the options leg of the
trade on the Exchange immediately
upon entry and without order exposure
if the order is for at least 1,000
contracts, is part of a QCT, is executed
at a price at least equal to the NBBO and
if there are no Customer Orders in the
Exchange’s Consolidated Book at the
same price.7
The NYSE Amex Electronic QCC
Filing was based on an International
Securities Exchange (‘‘ISE’’) rule
approved by the Commission.8 The ISE
QCC Proposal was controversial,
attracting opposition from multiple
exchanges including NYSE Amex.9 The
Commission, however, ultimately
approved the ISE QCC Proposal, finding
it to be consistent with the Securities
Exchange Act of 1934 (the ‘‘Act’’). NYSE
Amex implemented the NYSE Amex
Electronic QCC Filing, and is proposing
this rule change, as a competitive
response to the approval of the PHLX
floor-based QCC filing.
Under the NYSE Amex Electronic
QCC Filing, QCCs currently may only be
submitted electronically from off the
Floor through the NYSE Amex System.
In this regard, ATP Holders on the Floor
of the Exchange are not allowed to enter
QCCs into the NYSE Amex System, or
otherwise effect them in open outcry. To
provide a mechanism for the Exchange
to surveil for whether QCCs were
entered from off of the Floor, the
Exchange adopted Commentary .01 to
Rule 985NY, which requires ATP
Holders to maintain books and records
demonstrating that each QCC was
routed to the NYSE Amex System from
off of the Floor. Presently, any QCC that
does not have a corresponding record
required by this provision would be
deemed to have been entered from on
the Floor in violation of Rule 985NY. In
addition, the Exchange has adopted
policies and procedures to ensure that
ATP Holders use the QCC properly.10
4 The NYSE Amex System is configured to
automatically reject a QCC entered when the order
is for less than 1,000 contracts, is entered at a price
worse than the national best bid or offer (‘‘NBBO’’)
or is entered at the same price as Customer orders
in the Exchange’s Consolidated Book.
5 See Securities Exchange Act Release No. 64688
(June 16, 2011), 76 FR 36606 (June 22, 2011) (SR–
Phlx–2011–56).
6 See Securities Exchange Act Release No. 64085
(March 17, 2011), 76 FR 16024 (March 22, 2011)
(SR–NYSEAmex–2011–14) (‘‘NYSE Amex
Electronic QCC Filing’’).
7 A QCT is a transaction consisting of two or more
component orders, executed as agent or principal,
where: (a) At least one component is an NMS stock,
as defined in Rule 600 of Regulation NMS under the
Exchange Act; (b) all components are effected with
a product or price contingency that either has been
agreed to by all the respective counterparties or
arranged for by a broker-dealer as principal or
agent; (c) the execution of one component is
contingent upon the execution of all other
components at or near the same time; (d) the
specific relationship between the component orders
(e.g., the spread between the prices of the
component orders) is determined by the time the
contingent order is placed; (e) the component
orders bear a derivative relationship to one another,
represent different classes of shares of the same
issuer, or involve the securities of participants in
mergers or with intentions to merge that have been
announced or cancelled; and (f) the transaction is
fully hedged (without regard to any prior existing
position) as a result of other components of the
contingent trade. See Securities Exchange Act
Release No. 57620 (April 4, 2008), 73 FR 19271
(April 9, 2008) (the ‘‘QCT Release’’). That release
superseded a release initially granting the QCT
exemption. See Securities Exchange Act Release
No. 54389 (August 31, 2006), 71 FR 52829
(September 7, 2006) (‘‘Original QCT Exemption’’).
8 See Securities Exchange Act Release No. 63955
(February 24, 2011), 76 FR 11533 (March 2, 2011)
(SR–ISE–2010–73) (‘‘ISE Approval’’). See also
Securities Exchange Act Release No. 62523 (July 16,
2010), 75 FR 43211 (July 23, 2010) (SR–ISE–2010–
73) (‘‘ISE QCC Proposal’’).
9 The Exchange notes that letters commenting on
the ISE Proposal were submitted on its behalf by the
Exchange’s parent company, NYSE Euronext. See
e.g., letters dated August 9, 2010 and October 21,
2010 from Janet L. McGinness, Senior Vice
President—Legal & Corporate Secretary, Legal &
Government Affairs, NYSE Euronext.
10 First, the Exchange requires ATP Holders to
properly mark all QCCs as such. In addition, the
Financial Industry Regulatory Authority (‘‘FINRA’’),
on behalf of the Exchange, has implemented an
examination and surveillance program to assess
ATP Holder compliance with the requirements
applicable to QCCs, including the requirement that
the stock leg of the transaction be executed at or
near the same time as the options leg.
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 purpose of this filing is to amend
Rule 985NY to permit QCCs to be
electronically submitted to the NYSE
Amex System from the Floor of the
Exchange for potential execution.4 This
filing is modeled after a recently
approved rule change by NASDAQ
OMX PHLX (‘‘PHLX’’).5
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49813
Discussion
QCCs permit ATP Holders to provide
their customers a net price for the entire
trade, and then allow the ATP Holder to
execute the options leg of the trade on
the Exchange at a price at least equal to
the NBBO while using the QCT
exemption to effect the trade in the
equities leg at a price necessary to
achieve the net price.
The Exchange hereby proposes to
permit QCCs to be electronically entered
from the Floor of the Exchange by Floor
Brokers and executed immediately upon
entry without exposure into the NYSE
Amex System provided that no
Customer Orders exist on the
Exchange’s Consolidated Book at the
execution price, that the order is for at
least 1,000 contracts,11 and that the
execution price is at or between the
NBBO.12 QCCs entered from the Floor of
the Exchange would be electronically
entered into the NYSE Amex System by
a Floor Broker.13 The impact of this
proposal, coupled with the NYSE Amex
Electronic QCC Filing, would be that
ATP Holders would be able to enter
QCCs both on and off of the Floor. The
Exchange therefore proposes to
eliminate the requirements from NYSE
Amex Rule 985NY that QCCs only be
submitted electronically from off the
Floor to the NYSE Amex System and
from Commentary .01 to NYSE Amex
Rule 985NY that ATP Holders maintain
books and records demonstrating that
each QCC was routed to the NYSE
Amex System from off of the Floor, as
both will no longer be necessary if QCCs
are available for entry from the Floor.
The Commission in the ISE Approval
carefully considered the comparison
between floor-based and electronic
trading, including commissioning a
11 In order to satisfy the 1,000-contract
requirement, a QCC must be for 1,000 contracts and
could not be, for example, two 500-contract orders
or two 500-contract legs.
12 The Exchange does not propose to change the
definition of ‘‘Qualified Contingent Cross Order’’ in
NYSE Amex Rule 900.3NY. Thus, like QCCs
effected pursuant to the NYSE Amex Electronic
QCC Filing, QCCs entered from the Floor would
need to meet the requirements of NYSE Amex Rule
900.3NY and Commentary .01 of that rule.
Additionally, QCCs entered from the Floor by a
Floor Broker would be entered electronically into
the NYSE Amex System where a systemic check
would be performed to determine whether a
Customer Order is resting on the Exchange’s
Consolidated Book at the same price as the QCC,
whether the order was for less than 1,000 contracts
or whether the execution price would be outside
the NBBO, each of which would cause the QCC to
be rejected. If, however, the QCC is not rejected,
then the NYSE Amex System would execute the
QCC and simultaneously assign it an execution
time.
13 As proposed, only Floor Brokers would be
permitted to enter QCCs from on the Floor and
QCCs would not be permitted in open outcry.
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49814
Federal Register / Vol. 76, No. 155 / Thursday, August 11, 2011 / Notices
study by the Division of Risk, Strategy
and Financial Innovation (‘‘RiskFin
Study’’). The RiskFin Study and the ISE
Approval compare electronic trading
and floor trading, the similarities
between the two forms of trading, and
the ability of one to replicate the other.
Additionally, the Commission received
comment letters from multiple floorbased exchanges that challenged the
comparison that ISE drew between
floor-based and electronic trading.
Despite facing direct comparisons
between floor-based trading and
electronic trading by multiple
commenters, as well as by its own
Division of RiskFin, the ISE Approval
focuses on similarities between the two.
The Exchange believes that the ISE
Approval, on its face, draws no
distinctions and identifies no material
differences between floor-based and
electronic trading that would confound
the comparison between cross orders
entered electronically and those entered
on an exchange floor. The Exchange
believes that its proposal to permit the
entry of QCCs from the Floor is
consistent with the requirements stated
in the ISE Approval and consistent with
the Act. The Exchange also believes that
the Commission, in issuing the ISE
Approval, assumed that QCC orders
entered on the floor of an exchange that
meet the requirements stated in the ISE
Approval are equally consistent with
the Act.
The Exchange has analyzed the
application of Section 11(a) of the Act,
and the rules thereunder, to QCCs
entered from the Floor. Section 11(a)
and the rules thereunder generally
prohibit members of an exchange from
effecting transactions on the exchange
for their own account, the account of an
associated person, or an account with
respect to which it or an associated
person thereof exercises investment
discretion unless an exemption
applies.14 Section 11(a) contains
multiple exemptions, including
exemptions for dealers acting in the
capacity of market makers, odd-lot
dealers, and firms engaged in stabilizing
conduct; there are also rule-based
exemptions such as the ‘‘effect vs.
execute’’ exception under SEC Rule
11a2–2(T) under the Act.15
The Exchange has in the past
analyzed the application of Section
11(a) to various Exchange systems and
order types.16 The Exchange believes
that the entry and execution of QCCs
14 See
15 U.S.C. 78k(a).
17 CFR 240.11a2–2(T).
16 See, e.g. Securities Exchange Act Release No.
59472 (February 27, 2009), 74 9843 (March 6, 2009)
(SR–NYSEALTR–2008–14).
15 See
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from the Floor raises no novel issues
under Section 11(a) and the rules
thereunder from a compliance,
surveillance or enforcement perspective.
In other words, ATP Holders on the
Floor are currently required to comply
and are subject to review for compliance
with Section 11(a), and the rules
thereunder, when using Exchange
systems to effect transactions using
existing order types, and they will be
required to comply with Section 11(a)
and the rules thereunder when entering
QCCs from the Floor.
Nonetheless, out of an abundance of
caution, the Exchange proposes to
amend Commentary .01 to NYSE Amex
Rule 985NY to prohibit Floor Brokers
from entering QCCs from the Floor for
their own accounts, the account of an
associated person, or an account with
respect to which it or an associated
person thereof exercises investment
discretion (each a ‘‘prohibited
account’’).17
These restrictions set forth in
Commentary .01 to NYSE Amex Rule
985NY would not limit in any way the
obligation of ATP Holders, on the Floor
or otherwise, to comply with Section
11(a) or the rules thereunder. For
example, Floor Brokers cannot avoid or
circumvent their obligations under
Section 11(a) with respect to a QCC
entered from the Floor by transmitting
that order to another ATP Holder on the
Floor or to an ATP Holder off the Floor
of the Exchange. Likewise, ATP Holders
off the Floor must ensure that their
QCCs comply with Section 11(a) and the
rules thereunder. In both cases, ATP
Holders must ensure compliance with
Section 11(a) and the rules thereunder,
including by relying upon an exemption
such as those listed above.
Additionally, to provide a mechanism
for the Exchange to review whether
QCCs have been entered properly by
Floor Brokers, the Exchange proposes to
further amend Commentary .01 to NYSE
Amex Rule 985NY to require ATP
Holders on the Floor to maintain books
and records demonstrating that no QCC
was entered from the Floor by the ATP
Holder in a prohibited account. Any
QCC entered from the Floor that does
not have a corresponding record
required by this provision would be
deemed to have been entered in
violation of Commentary .01 to NYSE
Amex Rule 985NY.
The Exchange also proposes to amend
Commentary .01 to NYSE Amex Rule
985NY to clarify that NYSE Amex Rules
934NY, 934.1NY, 934.2NY, and
934.3NY do not apply when Floor
17 This restriction is the same as the one found
in PHLX Rule 1064(e)(2).
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Brokers are executing QCCs. The
Exchange is making this clarification to
eliminate any confusion about whether
the various crossing provisions in those
rules may apply to QCCs when they are
executed by Floor Brokers.18 In
addition, the Exchange is moving a
recordkeeping obligation from current
Commentary .01 to Commentary .02 and
modifying it to require that with respect
to QCCs routed to the NYSE Amex
System from off of the Floor, ATP
Holders must maintain books and
records demonstrating that each such
order was routed to the system from off
of the Floor.19 Finally, the Exchange is
adding Commentary .03 to NYSE Amex
Rule 985NY to clarify that the order
exposure requirements found in NYSE
Amex Rule 935NY do not apply to
QCCs. That rule generally provides that
with respect to orders routed to the
NYSE Amex System, ATP Holders may
not execute as principal orders they
represent as agent unless such orders
are first exposed on the Exchange for at
least one second.
The Exchange’s proposal addresses
the mechanics of executing the stock
and options components of a net-price
transaction. The Exchange believes that
it is necessary that it provide ATP
Holders and their customers with the
same trading capabilities available on
other exchanges with respect to QCCs,
including the change proposed herein,
which would permit ATP Holders to
execute the options legs of their
customers’ large complex orders on the
Exchange.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent withSection
6(b) of the Act,20 in general, and furthers
the objectives of Section 6(b)(5) 21 and
6(b)(8) of the Act,22 inparticular,
because it is designed to promote just
and equitable principles of trade,remove
impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest and does not impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act. The proposed rule
change is consistent with the protection
18 This change is modeled after the changes to
PHLX Rule 1064(a), (b) and (c).
19 The Exchange also is clarifying that
Commentary .02 would not apply to a Qualified
Contingent Cross Order covered by Commentary .01
to NYSE Amex Rule 985NY (i.e., a Qualified
Contingent Cross Order routed to a Floor Broker for
entry into the NYSE Amex System).
20 15 U.S.C. 78f(b).
21 15 U.S.C. 78f(b)(5).
22 15 U.S.C. 78f(b)(8).
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Federal Register / Vol. 76, No. 155 / Thursday, August 11, 2011 / Notices
of investors in that it is designed to
prevent Trade-Throughs. In addition,
the proposed rule change would
promote a free and open market by
permitting the Exchange to compete
with other exchanges for these types of
orders. In this regard, competition
would result in benefits to the investing
public, whereas a lack of competition
would serve to limit the choices that the
public has for execution of their options
business.
In addition, the proposed rule change
is consistent with Section 11A(a)(1)(C)
of the Act,23 in which Congress found
that it is in the public interest and
appropriate for the protection of
investors and the maintenance of fair
and orderly markets to assure, among
other things, the economically efficient
execution of securities transactions. As
described in detail above, the proposed
rule change is also consistent with
Section 11(a) of the Act and the rules
thereunder.
The Exchange believes, similar to the
Commission’s basis for finding that
ISE’s QCC proposal was consistent with
the Act, that permitting the entry of
QCCs from the Floor ‘‘would facilitate
the execution of qualified contingent
trades, for which the Commission found
in the Original QCT Exemption to be of
benefit to the market as a whole,
contributing to the efficient functioning
of the securities markets and the price
discovery process.’’ 24 Further,
permitting the entry of QCCs from the
Floor ‘‘would provide assurance to
parties to stock-option [QCTs] that their
hedge would be maintained by allowing
the options component to be executed
as a clean cross.’’ 25 In addition, like the
ISE QCC Proposal, the Exchange’s
proposal to permit the entry of QCCs
from the Floor ‘‘is narrowly drawn and
establishes a limited exception to the
general principle of exposure, and
retains the general principle of customer
priority in the options markets.’’ 26
srobinson on DSK4SPTVN1PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 27 and Rule
19b–4(f)(6) thereunder.28 Because the
proposed rule change does not:
(i) Significantly affect the protection of
investors or the public interest;
(ii) impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSEAmex–2011–56 on
the subject line.
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NYSEAmex–2011–56. This
file number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Section, 100 F Street, NE.,
Washington, DC 20549–1090 on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing will
also 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–
NYSEAmex–2011–56 and should be
submitted on or before August 31, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–20388 Filed 8–10–11; 8:45 am]
BILLING CODE 8011–01–P
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has complied with this
requirement.
27 15
28 17
23 15
U.S.C. 78k–1(a)(1)(C).
ISE Approval at 11540.
24 See
25 Id.
26 See
ISE Approval at 11541.
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Frm 00091
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E:\FR\FM\11AUN1.SGM
CFR 200.30–3(a)(12).
11AUN1
Agencies
[Federal Register Volume 76, Number 155 (Thursday, August 11, 2011)]
[Notices]
[Pages 49812-49815]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20388]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65047; File No. SR-NYSEAmex-2011-56]
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Amex
Options Rule 985NY To Permit Qualified Contingent Cross Orders To Be
Electronically Submitted to the NYSE Amex System From the Floor of the
Exchange for Potential Execution
August 5, 2011.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on August 1, 2011, NYSE Amex LLC (the ``Exchange'' or ``NYSE
Amex'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend NYSE Amex Options Rule 985NY to
permit Qualified Contingent Cross Orders (``QCCs'') to be
electronically submitted to the NYSE Amex System from the Floor of the
Exchange for potential [sic]. The text of the proposed rule change is
available at the Exchange's Web site at https://www.nyse.com, on the
Commission's Web site at https://www.sec.gov, at the Exchange's
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of,
[[Page 49813]]
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 purpose of this filing is to amend Rule 985NY to permit QCCs to
be electronically submitted to the NYSE Amex System from the Floor of
the Exchange for potential execution.\4\ This filing is modeled after a
recently approved rule change by NASDAQ OMX PHLX (``PHLX'').\5\
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\4\ The NYSE Amex System is configured to automatically reject a
QCC entered when the order is for less than 1,000 contracts, is
entered at a price worse than the national best bid or offer
(``NBBO'') or is entered at the same price as Customer orders in the
Exchange's Consolidated Book.
\5\ See Securities Exchange Act Release No. 64688 (June 16,
2011), 76 FR 36606 (June 22, 2011) (SR-Phlx-2011-56).
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Background
The Exchange recently adopted rules that permit ATP Holders to
submit QCCs electronically from off the Floor through the NYSE Amex
System.\6\ The QCC permits an NYSE Amex ATP Holder to effect a
qualified contingent trade (``QCT'') in a Regulation NMS stock and
cross the options leg of the trade on the Exchange immediately upon
entry and without order exposure if the order is for at least 1,000
contracts, is part of a QCT, is executed at a price at least equal to
the NBBO and if there are no Customer Orders in the Exchange's
Consolidated Book at the same price.\7\
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\6\ See Securities Exchange Act Release No. 64085 (March 17,
2011), 76 FR 16024 (March 22, 2011) (SR-NYSEAmex-2011-14) (``NYSE
Amex Electronic QCC Filing'').
\7\ A QCT is a transaction consisting of two or more component
orders, executed as agent or principal, where: (a) At least one
component is an NMS stock, as defined in Rule 600 of Regulation NMS
under the Exchange Act; (b) all components are effected with a
product or price contingency that either has been agreed to by all
the respective counterparties or arranged for by a broker-dealer as
principal or agent; (c) the execution of one component is contingent
upon the execution of all other components at or near the same time;
(d) the specific relationship between the component orders (e.g.,
the spread between the prices of the component orders) is determined
by the time the contingent order is placed; (e) the component orders
bear a derivative relationship to one another, represent different
classes of shares of the same issuer, or involve the securities of
participants in mergers or with intentions to merge that have been
announced or cancelled; and (f) the transaction is fully hedged
(without regard to any prior existing position) as a result of other
components of the contingent trade. See Securities Exchange Act
Release No. 57620 (April 4, 2008), 73 FR 19271 (April 9, 2008) (the
``QCT Release''). That release superseded a release initially
granting the QCT exemption. See Securities Exchange Act Release No.
54389 (August 31, 2006), 71 FR 52829 (September 7, 2006) (``Original
QCT Exemption'').
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The NYSE Amex Electronic QCC Filing was based on an International
Securities Exchange (``ISE'') rule approved by the Commission.\8\ The
ISE QCC Proposal was controversial, attracting opposition from multiple
exchanges including NYSE Amex.\9\ The Commission, however, ultimately
approved the ISE QCC Proposal, finding it to be consistent with the
Securities Exchange Act of 1934 (the ``Act''). NYSE Amex implemented
the NYSE Amex Electronic QCC Filing, and is proposing this rule change,
as a competitive response to the approval of the PHLX floor-based QCC
filing.
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\8\ See Securities Exchange Act Release No. 63955 (February 24,
2011), 76 FR 11533 (March 2, 2011) (SR-ISE-2010-73) (``ISE
Approval''). See also Securities Exchange Act Release No. 62523
(July 16, 2010), 75 FR 43211 (July 23, 2010) (SR-ISE-2010-73) (``ISE
QCC Proposal'').
\9\ The Exchange notes that letters commenting on the ISE
Proposal were submitted on its behalf by the Exchange's parent
company, NYSE Euronext. See e.g., letters dated August 9, 2010 and
October 21, 2010 from Janet L. McGinness, Senior Vice President--
Legal & Corporate Secretary, Legal & Government Affairs, NYSE
Euronext.
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Under the NYSE Amex Electronic QCC Filing, QCCs currently may only
be submitted electronically from off the Floor through the NYSE Amex
System. In this regard, ATP Holders on the Floor of the Exchange are
not allowed to enter QCCs into the NYSE Amex System, or otherwise
effect them in open outcry. To provide a mechanism for the Exchange to
surveil for whether QCCs were entered from off of the Floor, the
Exchange adopted Commentary .01 to Rule 985NY, which requires ATP
Holders to maintain books and records demonstrating that each QCC was
routed to the NYSE Amex System from off of the Floor. Presently, any
QCC that does not have a corresponding record required by this
provision would be deemed to have been entered from on the Floor in
violation of Rule 985NY. In addition, the Exchange has adopted policies
and procedures to ensure that ATP Holders use the QCC properly.\10\
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\10\ First, the Exchange requires ATP Holders to properly mark
all QCCs as such. In addition, the Financial Industry Regulatory
Authority (``FINRA''), on behalf of the Exchange, has implemented an
examination and surveillance program to assess ATP Holder compliance
with the requirements applicable to QCCs, including the requirement
that the stock leg of the transaction be executed at or near the
same time as the options leg.
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Discussion
QCCs permit ATP Holders to provide their customers a net price for
the entire trade, and then allow the ATP Holder to execute the options
leg of the trade on the Exchange at a price at least equal to the NBBO
while using the QCT exemption to effect the trade in the equities leg
at a price necessary to achieve the net price.
The Exchange hereby proposes to permit QCCs to be electronically
entered from the Floor of the Exchange by Floor Brokers and executed
immediately upon entry without exposure into the NYSE Amex System
provided that no Customer Orders exist on the Exchange's Consolidated
Book at the execution price, that the order is for at least 1,000
contracts,\11\ and that the execution price is at or between the
NBBO.\12\ QCCs entered from the Floor of the Exchange would be
electronically entered into the NYSE Amex System by a Floor Broker.\13\
The impact of this proposal, coupled with the NYSE Amex Electronic QCC
Filing, would be that ATP Holders would be able to enter QCCs both on
and off of the Floor. The Exchange therefore proposes to eliminate the
requirements from NYSE Amex Rule 985NY that QCCs only be submitted
electronically from off the Floor to the NYSE Amex System and from
Commentary .01 to NYSE Amex Rule 985NY that ATP Holders maintain books
and records demonstrating that each QCC was routed to the NYSE Amex
System from off of the Floor, as both will no longer be necessary if
QCCs are available for entry from the Floor.
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\11\ In order to satisfy the 1,000-contract requirement, a QCC
must be for 1,000 contracts and could not be, for example, two 500-
contract orders or two 500-contract legs.
\12\ The Exchange does not propose to change the definition of
``Qualified Contingent Cross Order'' in NYSE Amex Rule 900.3NY.
Thus, like QCCs effected pursuant to the NYSE Amex Electronic QCC
Filing, QCCs entered from the Floor would need to meet the
requirements of NYSE Amex Rule 900.3NY and Commentary .01 of that
rule. Additionally, QCCs entered from the Floor by a Floor Broker
would be entered electronically into the NYSE Amex System where a
systemic check would be performed to determine whether a Customer
Order is resting on the Exchange's Consolidated Book at the same
price as the QCC, whether the order was for less than 1,000
contracts or whether the execution price would be outside the NBBO,
each of which would cause the QCC to be rejected. If, however, the
QCC is not rejected, then the NYSE Amex System would execute the QCC
and simultaneously assign it an execution time.
\13\ As proposed, only Floor Brokers would be permitted to enter
QCCs from on the Floor and QCCs would not be permitted in open
outcry.
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The Commission in the ISE Approval carefully considered the
comparison between floor-based and electronic trading, including
commissioning a
[[Page 49814]]
study by the Division of Risk, Strategy and Financial Innovation
(``RiskFin Study''). The RiskFin Study and the ISE Approval compare
electronic trading and floor trading, the similarities between the two
forms of trading, and the ability of one to replicate the other.
Additionally, the Commission received comment letters from multiple
floor-based exchanges that challenged the comparison that ISE drew
between floor-based and electronic trading.
Despite facing direct comparisons between floor-based trading and
electronic trading by multiple commenters, as well as by its own
Division of RiskFin, the ISE Approval focuses on similarities between
the two. The Exchange believes that the ISE Approval, on its face,
draws no distinctions and identifies no material differences between
floor-based and electronic trading that would confound the comparison
between cross orders entered electronically and those entered on an
exchange floor. The Exchange believes that its proposal to permit the
entry of QCCs from the Floor is consistent with the requirements stated
in the ISE Approval and consistent with the Act. The Exchange also
believes that the Commission, in issuing the ISE Approval, assumed that
QCC orders entered on the floor of an exchange that meet the
requirements stated in the ISE Approval are equally consistent with the
Act.
The Exchange has analyzed the application of Section 11(a) of the
Act, and the rules thereunder, to QCCs entered from the Floor. Section
11(a) and the rules thereunder generally prohibit members of an
exchange from effecting transactions on the exchange for their own
account, the account of an associated person, or an account with
respect to which it or an associated person thereof exercises
investment discretion unless an exemption applies.\14\ Section 11(a)
contains multiple exemptions, including exemptions for dealers acting
in the capacity of market makers, odd-lot dealers, and firms engaged in
stabilizing conduct; there are also rule-based exemptions such as the
``effect vs. execute'' exception under SEC Rule 11a2-2(T) under the
Act.\15\
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\14\ See 15 U.S.C. 78k(a).
\15\ See 17 CFR 240.11a2-2(T).
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The Exchange has in the past analyzed the application of Section
11(a) to various Exchange systems and order types.\16\ The Exchange
believes that the entry and execution of QCCs from the Floor raises no
novel issues under Section 11(a) and the rules thereunder from a
compliance, surveillance or enforcement perspective. In other words,
ATP Holders on the Floor are currently required to comply and are
subject to review for compliance with Section 11(a), and the rules
thereunder, when using Exchange systems to effect transactions using
existing order types, and they will be required to comply with Section
11(a) and the rules thereunder when entering QCCs from the Floor.
---------------------------------------------------------------------------
\16\ See, e.g. Securities Exchange Act Release No. 59472
(February 27, 2009), 74 9843 (March 6, 2009) (SR-NYSEALTR-2008-14).
---------------------------------------------------------------------------
Nonetheless, out of an abundance of caution, the Exchange proposes
to amend Commentary .01 to NYSE Amex Rule 985NY to prohibit Floor
Brokers from entering QCCs from the Floor for their own accounts, the
account of an associated person, or an account with respect to which it
or an associated person thereof exercises investment discretion (each a
``prohibited account'').\17\
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\17\ This restriction is the same as the one found in PHLX Rule
1064(e)(2).
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These restrictions set forth in Commentary .01 to NYSE Amex Rule
985NY would not limit in any way the obligation of ATP Holders, on the
Floor or otherwise, to comply with Section 11(a) or the rules
thereunder. For example, Floor Brokers cannot avoid or circumvent their
obligations under Section 11(a) with respect to a QCC entered from the
Floor by transmitting that order to another ATP Holder on the Floor or
to an ATP Holder off the Floor of the Exchange. Likewise, ATP Holders
off the Floor must ensure that their QCCs comply with Section 11(a) and
the rules thereunder. In both cases, ATP Holders must ensure compliance
with Section 11(a) and the rules thereunder, including by relying upon
an exemption such as those listed above.
Additionally, to provide a mechanism for the Exchange to review
whether QCCs have been entered properly by Floor Brokers, the Exchange
proposes to further amend Commentary .01 to NYSE Amex Rule 985NY to
require ATP Holders on the Floor to maintain books and records
demonstrating that no QCC was entered from the Floor by the ATP Holder
in a prohibited account. Any QCC entered from the Floor that does not
have a corresponding record required by this provision would be deemed
to have been entered in violation of Commentary .01 to NYSE Amex Rule
985NY.
The Exchange also proposes to amend Commentary .01 to NYSE Amex
Rule 985NY to clarify that NYSE Amex Rules 934NY, 934.1NY, 934.2NY, and
934.3NY do not apply when Floor Brokers are executing QCCs. The
Exchange is making this clarification to eliminate any confusion about
whether the various crossing provisions in those rules may apply to
QCCs when they are executed by Floor Brokers.\18\ In addition, the
Exchange is moving a recordkeeping obligation from current Commentary
.01 to Commentary .02 and modifying it to require that with respect to
QCCs routed to the NYSE Amex System from off of the Floor, ATP Holders
must maintain books and records demonstrating that each such order was
routed to the system from off of the Floor.\19\ Finally, the Exchange
is adding Commentary .03 to NYSE Amex Rule 985NY to clarify that the
order exposure requirements found in NYSE Amex Rule 935NY do not apply
to QCCs. That rule generally provides that with respect to orders
routed to the NYSE Amex System, ATP Holders may not execute as
principal orders they represent as agent unless such orders are first
exposed on the Exchange for at least one second.
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\18\ This change is modeled after the changes to PHLX Rule
1064(a), (b) and (c).
\19\ The Exchange also is clarifying that Commentary .02 would
not apply to a Qualified Contingent Cross Order covered by
Commentary .01 to NYSE Amex Rule 985NY (i.e., a Qualified Contingent
Cross Order routed to a Floor Broker for entry into the NYSE Amex
System).
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The Exchange's proposal addresses the mechanics of executing the
stock and options components of a net-price transaction. The Exchange
believes that it is necessary that it provide ATP Holders and their
customers with the same trading capabilities available on other
exchanges with respect to QCCs, including the change proposed herein,
which would permit ATP Holders to execute the options legs of their
customers' large complex orders on the Exchange.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent
withSection 6(b) of the Act,\20\ in general, and furthers the
objectives of Section 6(b)(5) \21\ and 6(b)(8) of the Act,\22\
inparticular, because it is designed to promote just and equitable
principles of trade,remove impediments to and perfect the mechanisms of
a free and open market and a national market system and, in general, to
protect investors and the public interest and does not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act. The proposed rule change is consistent with
the protection
[[Page 49815]]
of investors in that it is designed to prevent Trade-Throughs. In
addition, the proposed rule change would promote a free and open market
by permitting the Exchange to compete with other exchanges for these
types of orders. In this regard, competition would result in benefits
to the investing public, whereas a lack of competition would serve to
limit the choices that the public has for execution of their options
business.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
\22\ 15 U.S.C. 78f(b)(8).
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In addition, the proposed rule change is consistent with Section
11A(a)(1)(C) of the Act,\23\ in which Congress found that it is in the
public interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure, among other things,
the economically efficient execution of securities transactions. As
described in detail above, the proposed rule change is also consistent
with Section 11(a) of the Act and the rules thereunder.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78k-1(a)(1)(C).
---------------------------------------------------------------------------
The Exchange believes, similar to the Commission's basis for
finding that ISE's QCC proposal was consistent with the Act, that
permitting the entry of QCCs from the Floor ``would facilitate the
execution of qualified contingent trades, for which the Commission
found in the Original QCT Exemption to be of benefit to the market as a
whole, contributing to the efficient functioning of the securities
markets and the price discovery process.'' \24\ Further, permitting the
entry of QCCs from the Floor ``would provide assurance to parties to
stock-option [QCTs] that their hedge would be maintained by allowing
the options component to be executed as a clean cross.'' \25\ In
addition, like the ISE QCC Proposal, the Exchange's proposal to permit
the entry of QCCs from the Floor ``is narrowly drawn and establishes a
limited exception to the general principle of exposure, and retains the
general principle of customer priority in the options markets.'' \26\
---------------------------------------------------------------------------
\24\ See ISE Approval at 11540.
\25\ Id.
\26\ See ISE Approval at 11541.
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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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \27\ and Rule 19b-4(f)(6) thereunder.\28\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\27\ 15 U.S.C. 78s(b)(3)(A)(iii).
\28\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has complied with this requirement.
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSEAmex-2011-56 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-NYSEAmex-2011-56. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for website
viewing and printing in the Commission's Public Reference Section, 100
F Street, NE., Washington, DC 20549-1090 on official business days
between the hours of 10 a.m. and 3 p.m. Copies of the filing will also
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-
NYSEAmex-2011-56 and should be submitted on or before August 31, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20388 Filed 8-10-11; 8:45 am]
BILLING CODE 8011-01-P