Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Deleting the Text of NYSE Rule 92 and Adopting a New NYSE Rule 5320 That Is Substantially the Same as Financial Industry Regulatory Authority Rule 5320 To Prohibit Trading Ahead of Customer Orders With Certain Exceptions (Commonly Known as the Manning Rule), 53015-53018 [2011-21656]
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Federal Register / Vol. 76, No. 164 / Wednesday, August 24, 2011 / Notices
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
requirements across self-regulatory
organizations.
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
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–NYSEArca–2011–57 on the
subject line.
IV. Solicitation of Comments
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–2011–57. 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 such 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–2011–57 and should be
submitted on or before September 14,
2011.
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Elizabeth M. Murphy.
Secretary.
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
wreier-aviles on DSKGBLS3C1PROD with NOTICES
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 10 and Rule
19b–4(f)(6) thereunder.11 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.
A proposed rule change filed under
Rule 19b–4(f)(6) 12 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),13 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest.
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.
[FR Doc. 2011–21661 Filed 8–23–11; 8:45 am]
10 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
12 17 CFR 240.19b–4(f)(6).
13 17 CFR 240.19b–4(f)(6)(iii).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65164; File No. SR–NYSE–
2011–43]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Deleting the
Text of NYSE Rule 92 and Adopting a
New NYSE Rule 5320 That Is
Substantially the Same as Financial
Industry Regulatory Authority Rule
5320 To Prohibit Trading Ahead of
Customer Orders With Certain
Exceptions (Commonly Known as the
Manning Rule)
August 18, 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 August 11,
2011, New York Stock Exchange LLC
(‘‘NYSE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III 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 delete the
text of NYSE Rule 92, which limits
trading ahead of customer orders, and
adopt a new NYSE Rule 5320 that is
substantially the same as Financial
Industry Regulatory Authority
(‘‘FINRA’’) Rule 5320. The text of the
proposed rule change is available at the
Exchange, the Commission’s Public
Reference Room, and https://
www.nyse.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
BILLING CODE 8011–01–P
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1 15
14 17
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2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 76, No. 164 / Wednesday, August 24, 2011 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to delete the
text of NYSE Rule 92, which limits
trading ahead of customer orders, and
adopt a new NYSE Rule 5320 that is
substantially the same as FINRA Rule
5320.3 As with FINRA Rule 5320,
proposed NYSE Rule 5320 would
prohibit trading ahead of customer
orders with certain exceptions,
including large order and institutional
account exceptions, a no-knowledge
exception, a riskless principal
exception, an intermarket sweep order
(‘‘ISO’’) exception, and odd lot and bona
fide error transaction exceptions,
discussed in detail below. Proposed
NYSE Rule 5320 also provides the same
guidance as FINRA Rule 5320 on
minimum price improvement standards,
order handling procedures, and trading
outside normal market hours.
wreier-aviles on DSKGBLS3C1PROD with NOTICES
Background
NYSE Rule 92, which applies to
Exchange-listed securities, generally
prohibits member organizations from
trading on a proprietary basis ahead of,
or along with, customer orders that are
executable at the same price as the
proprietary order. The Rule contains
several exceptions that make it
permissible for a member or member
organization to enter a proprietary order
while representing a customer order that
could be executed at the same price,
provided, among other things, that the
customer order is not for an account of
an individual investor and the customer
has provided express permission.
Current NYSE Rule 92 also permits
riskless transactions for the purpose of
facilitating the execution, on a riskless
principal basis, of one or more customer
orders.
Proposal To Adopt Text of FINRA Rule
5320
In conjunction with its rules
harmonization with FINRA, the
Exchange proposes to delete the text of
NYSE Rule 92 and its supplementary
material and adopt the text of FINRA
Rule 5320, with certain technical
changes, as NYSE Rule 5320. FINRA
Rule 5320 generally provides that a
FINRA member that accepts and holds
an order in an equity security from its
3 See
Securities Exchange Act Release No. 63895
(February 11, 2011), 76 FR 9386 (February 17, 2011)
(SR–FINRA–2009–090). The Exchange’s affiliates,
NYSE Amex LLC and NYSE Arca, Inc., also have
filed substantially similar rule filings. See SR–
NYSEAmex–2011–59 and SR–NYSEArca–2011–57.
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own customer or a customer of another
broker-dealer without immediately
executing the order is prohibited from
trading that security on the same side of
the market for its own account at a price
that would satisfy the customer order,
unless it immediately thereafter
executes the customer order up to the
size and at the same or better price at
which it traded for its own account.
Proposed NYSE Rule 5320 permits a
member organization to trade a security
on the same side of the market for its
own account at a price that would
satisfy a customer order in certain
circumstances.4
Large Orders and Institutional Accounts
The most notable exception to the
customer order protection rule is to
allow member organizations to negotiate
terms and conditions on the acceptance
of certain large-sized orders (orders of
10,000 shares or more unless such
orders are less than $100,000 in value)
or orders from institutional accounts as
defined in NASD Rule 3110. Such terms
and conditions would permit the
member organization to continue to
trade alongside or ahead of such
customer orders if the customer agrees.
Specifically, under the proposed rule,
a member organization would be
permitted to trade a security on the
same side of the market for its own
account at a price that would satisfy a
customer order provided that the
member organization provides clear and
comprehensive written disclosure to
each customer at account opening and
annually thereafter that (a) discloses
that the member organization may trade
proprietarily at prices that would satisfy
the customer order, and (b) provides the
customer with a meaningful opportunity
to opt in to the NYSE Rule 5320
protections with respect to all or any
portion of its order.
If a customer does not opt in to the
protections with respect to all or any
portion of its order, the member
organization may reasonably conclude
that such customer has consented to the
member organization trading a security
on the same side of the market for its
own account at a price that would
satisfy the customer’s order.5
4 Although NYSE Rule 92 refers to member
organizations and members, proposed NYSE Rule
5320 would follow the structure of FINRA Rule
5320 and refer to member organizations. Because all
NYSE members are associated with NYSE member
organizations, proposed NYSE Rule 5320 would
apply to them.
5 As is always the case, customers retain the right
to withdraw consent at any time. Therefore, a
member organization’s reasonable conclusion that a
customer has consented to the member organization
trading along with such customer’s order is subject
to further instruction and modification from the
customer.
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In lieu of providing written disclosure
to customers at account opening and
annually thereafter, the proposed rule
would permit member organizations to
provide clear and comprehensive oral
disclosure to, and obtain consent from,
a customer on an order-by-order basis,
provided that the member organization
documents who provided such consent
and that such consent evidences the
customer’s understanding of the terms
and conditions of the order. In addition,
where a customer has opted in to the
NYSE Rule 5320 protections, a member
organization may still obtain consent on
an order-by-order basis to trade ahead of
or along with an order from that
customer, provided that the member
organization documents who provided
such consent and that such consent
evidences the customer’s understanding
of the terms and conditions of the order.
No-Knowledge Exception
The Exchange is also proposing to
include a ‘‘no-knowledge’’ exception to
its customer order protection rule. The
proposed exception would allow a
proprietary trading unit of a member
organization to continue trading in a
proprietary capacity and at prices that
would satisfy customer orders that were
being held by another, separate trading
unit at the member organization. The
no-knowledge exception would be
applicable with respect to NMS stocks,
as defined in Rule 600 of SEC
Regulation NMS. In order to avail itself
of the no-knowledge exception, a
member organization must first
implement and utilize an effective
system of internal controls (such as
appropriate information barriers) that
operate to prevent the proprietary
trading unit from obtaining knowledge
of the customer orders that are held at
a separate trading unit.
A member organization that structures
its order handling practices in NMS
stocks to permit its proprietary and/or
market-making desk to trade at prices
that would satisfy customer orders held
by a separate trading unit must disclose
in writing to its customers, at account
opening and annually thereafter, a
description of the manner in which
customer orders are handled by the
member organization and the
circumstances under which the member
organization may trade proprietarily at
its market-making desk at prices that
would satisfy the customer order.
Riskless Principal Exception
The Exchange’s proposal also
provides that the obligations under this
rule shall not apply to a member
organization’s proprietary trade if such
proprietary trade is for the purposes of
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Federal Register / Vol. 76, No. 164 / Wednesday, August 24, 2011 / Notices
facilitating the execution, on a riskless
principal basis, of another order from a
customer (whether its own customer or
the customer of another broker-dealer),
provided that the member organization
(a) submits a report, contemporaneously
with the execution of the facilitated
order, identifying the trade as riskless
principal to the Exchange and (b) has
written policies and procedures to
ensure that riskless principal
transactions relied upon for this
exception comply with applicable
Exchange rules. At a minimum these
policies and procedures must require
that the customer order was received
prior to the offsetting principal
transaction, and that the offsetting
principal transaction is at the same
price as the customer order exclusive of
any markup or markdown, commission
equivalent or other fee and is allocated
to a riskless principal or customer
account in a consistent manner and
within 60 seconds of execution.
Member organizations must have
supervisory systems in place that
produce records that enable the member
organization and the Exchange to
reconstruct accurately, readily, and in a
time-sequenced manner all orders on
which a member organization relies in
claiming this exception.
ISO Exception
The proposed rule change also
provides that a member organization
shall be exempt from the obligation to
execute a customer order in a manner
consistent with NYSE Rule 5320 with
regard to trading for its own account
that is the result of an intermarket
sweep order routed in compliance with
Rule 600(b)(30)(ii) of SEC Regulation
NMS where the customer order is
received after the member organization
routed the ISO. Where a member
organization routes an ISO to facilitate
a customer order and that customer has
consented to not receiving the better
prices obtained by the ISO, the member
organization also shall be exempt with
respect to any trading for its own
account that is the result of the ISO with
respect to the consenting customer’s
order.
wreier-aviles on DSKGBLS3C1PROD with NOTICES
Odd Lot and Bona Fide Error Exception
In addition, the Exchange proposes
applying an exception for a firm’s
proprietary trade that (1) offsets a
customer odd lot order (i.e., an order
less than one round lot, which is
typically 100 shares) or (2) corrects a
bona fide error. With respect to bona
fide errors, member organizations would
be required to demonstrate and
document the basis upon which a
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transaction meets the bona fide error
exception.
Minimum Price Improvement Standards
The proposed rule change establishes
the minimum amount of price
improvement necessary for a member
organization to execute an order on a
proprietary basis when holding an
unexecuted limit order in that same
security without being required to
execute the held limit order.
Order Handling Procedures
The proposed rule change provides
that a member organization must make
every effort to execute a marketable
customer order that it receives fully and
promptly. A member organization that
is holding a customer order that is
marketable and has not been
immediately executed must make every
effort to cross such order with any other
order received by the member
organization on the other side of the
market up to the size of such order at
a price that is no less than the best bid
and no greater than the best offer at the
time that the subsequent order is
received by the member organization
and that is consistent with the terms of
the orders. In the event that a member
organization is holding multiple orders
on both sides of the market that have
not been executed, the member
organization must make every effort to
cross or otherwise execute such orders
in a manner that is reasonable and
consistent with the objectives of the
proposed rule and with the terms of the
orders. A member organization can
satisfy the crossing requirement by
contemporaneously buying from the
seller and selling to the buyer at the
same price.
Trading Outside Normal Market Hours
A member organization generally may
limit the life of a customer order to the
period of normal market hours of 9:30
a.m. to 4 p.m. Eastern Time. However,
if the customer and member
organization agree to the processing of
the customer’s order outside normal
market hours, the protections of
proposed NYSE Rule 5320 would apply
to that customer’s order(s) at all times
the customer order is executable by the
member organization.
Conforming and Other Changes
The Exchange further proposes to
make a conforming change to NYSE
Rule 900 to delete a reference to NYSE
Rule 92 and to delete rule text that
provided that Rule 92 shall not preclude
a member or member organization from
entering in the Off-Hours Trading
Facility an aggregate-price order to buy
PO 00000
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53017
(sell) 15 or more securities coupled with
an identical order to sell (buy) when the
member or member organization holds
an unexecuted closing-price order for a
component security. The Exchange has
determined that, as part of the
harmonization process, it will not keep
this exception to NYSE Rule 92. The
Exchange further notes that the NYSE
Rule 900 reference is no longer
necessary because proposed NYSE Rule
5320 does not bar the entry of an order
for a member organization’s own
account when holding an unexecuted
customer order; rather, if the NYSE Rule
5320 customer order protections are
applicable, the member organization
only needs to ensure that a customer
order is executed up to the size and the
same or better price at which it traded
for its own account.
The Exchange has filed a series of
operative delays for NYSE Rule
92(c)(3),6 which permits Exchange
member organizations to submit riskless
principal orders to the Exchange, but
requires them to submit to a designated
Exchange database a report of the
execution of the facilitated order. In
extending the operative delay to
September 12, 2011, the Exchange
stated that it was premature to require
firms to meet the Exchange’s Front End
Systemic Capture reporting
requirements pending full
harmonization of the respective
customer order protection rules with
FINRA. In adopting NYSE Rule 5320
and deleting the text of NYSE Rule 92
in its entirety, no additional operative
delays for NYSE Rule 92(c)(3) are
necessary, as the Exchange will use the
FINRA model to capture riskless
principal orders.7
For consistency with Exchange rules,
NYSE Rule 5320 will have certain
differences from FINRA Rule 5320. The
Exchange proposes not to include
Supplementary Material .02(b) and
portions of Supplementary Material .06,
which relate to OTC equity securities,
6 See Securities Exchange Act Release Nos. 56968
(Dec. 14, 2007), 72 FR 72432 (Dec. 20, 2007) (SR–
NYSE–2007–114); 57682 (Apr. 17, 2008), 73 FR
22193 (Apr. 24, 2008) (SR–NYSE–2008–29); 59621
(Mar. 23, 2009), 74 FR 14179 (Mar. 30, 2009) (SR–
NYSE–2009–30); 60396 (July 30, 2009), 74 FR
39126 (Aug. 5, 2009) (SR–NYSE–2009–73); 61251
(Dec. 29, 2009), 75 FR 482 (Jan. 5, 2010) (SR–NYSE–
2009–129); 62541 (July 21, 2010), 75 FR 44042 (July
27, 2010) (SR–NYSE–2010–52); 63455 (Dec. 7.
2010), 75 FR 77687 (Dec. 13, 2010) (SR–NYSE–
2010–76); and 64860 (July 12, 2011), 76 FR 42150
(July 18, 2011) (SR–NYSE–2011–32).
7 All member organizations that would be subject
to proposed NYSE Rule 5320 also are subject to
FINRA Rule 5320 and would therefore report
riskless principal transactions as required under the
FINRA Rule. There would be no need for them to
separately report riskless principal transactions to
the Exchange.
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Federal Register / Vol. 76, No. 164 / Wednesday, August 24, 2011 / Notices
and to change all references from
‘‘members’’ to ‘‘member organizations.’’
Implementation Date
The Exchange proposes to implement
NYSE Rule 5320 on the same date that
FINRA implements FINRA Rule 5320,
which FINRA has announced will be
September 12, 2011.8 The Exchange will
provide notice of the implementation
date to its member organizations via an
Information Memorandum.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) 9 of the Act,
in general, and furthers the objectives of
Section 6(b)(5) 10 in particular in that it
is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. The Exchange believes
that adopting the proposed rule at the
same time that FINRA implements a
substantially similar rule will contribute
to investor protection by defining
important parameters by which member
organizations must abide when trading
proprietarily while holding customer
limit and market orders, and foster
cooperation by harmonizing
requirements across self-regulatory
organizations.
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.
wreier-aviles on DSKGBLS3C1PROD with NOTICES
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 11 and Rule
19b–4(f)(6) thereunder.12 Because the
8 See
FINRA Regulatory Notice 11–24.
U.S.C. 78f(b).
10 15 U.S.C. 78f(b)(5).
11 15 U.S.C. 78s(b)(3)(A)(iii).
12 17 CFR 240.19b–4(f)(6).
9 15
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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.
A proposed rule change filed under
Rule 19b–4(f)(6) 13 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b4(f)(6)(iii),14 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest.
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–NYSE–2011–043 on the
subject line.
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 such 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–
2011–043 and should be submitted on
or before September 14, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–21656 Filed 8–23–11; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #12744 and #12745]
Nebraska Disaster #NE–00044
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
This is a Notice of the
Presidential declaration of a major
Paper Comments
disaster for Public Assistance Only for
the State of Nebraska (FEMA–4014–DR),
• Send paper comments in triplicate
dated 08/12/2011.
to Elizabeth M. Murphy, Secretary,
Incident: Severe Storms, Tornadoes,
Securities and Exchange Commission,
Straight-line Winds, and Flooding.
100 F Street, NE., Washington, DC
Incident Period: 06/19/2011 through
20549–1090.
06/21/2011.
All submissions should refer to File
EFFECTIVE DATE: 08/12/2011.
Number SR–NYSE–2011–043. This file
Physical Loan Application Deadline
number should be included on the
subject line if e-mail is used. To help the Date: 10/11/2011.
Economic Injury (EIDL) Loan
Commission process and review your
Application Deadline Date: 05/14/2012.
comments more efficiently, please use
only one method. The Commission will ADDRESSES: Submit completed loan
post all comments on the Commission’s applications to: U.S. Small Business
Administration, Processing and
Internet Web site (https://www.sec.gov/
Disbursement Center, 14925 Kingsport
rules/sro.shtml). Copies of the
Road, Fort Worth, TX 76155.
13 17
14 17
PO 00000
CFR 240.19b–4(f)(6).
CFR 240.19b–4(f)(6)(iii).
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SUMMARY:
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CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 76, Number 164 (Wednesday, August 24, 2011)]
[Notices]
[Pages 53015-53018]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-21656]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65164; File No. SR-NYSE-2011-43]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Deleting the Text of NYSE Rule 92 and Adopting a New NYSE Rule 5320
That Is Substantially the Same as Financial Industry Regulatory
Authority Rule 5320 To Prohibit Trading Ahead of Customer Orders With
Certain Exceptions (Commonly Known as the Manning Rule)
August 18, 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
August 11, 2011, New York Stock Exchange LLC (``NYSE'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III 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\ 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 delete the text of NYSE Rule 92, which
limits trading ahead of customer orders, and adopt a new NYSE Rule 5320
that is substantially the same as Financial Industry Regulatory
Authority (``FINRA'') Rule 5320. The text of the proposed rule change
is available at the Exchange, the Commission's Public Reference Room,
and https://www.nyse.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
[[Page 53016]]
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to delete the text of NYSE Rule 92, which
limits trading ahead of customer orders, and adopt a new NYSE Rule 5320
that is substantially the same as FINRA Rule 5320.\3\ As with FINRA
Rule 5320, proposed NYSE Rule 5320 would prohibit trading ahead of
customer orders with certain exceptions, including large order and
institutional account exceptions, a no-knowledge exception, a riskless
principal exception, an intermarket sweep order (``ISO'') exception,
and odd lot and bona fide error transaction exceptions, discussed in
detail below. Proposed NYSE Rule 5320 also provides the same guidance
as FINRA Rule 5320 on minimum price improvement standards, order
handling procedures, and trading outside normal market hours.
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\3\ See Securities Exchange Act Release No. 63895 (February 11,
2011), 76 FR 9386 (February 17, 2011) (SR-FINRA-2009-090). The
Exchange's affiliates, NYSE Amex LLC and NYSE Arca, Inc., also have
filed substantially similar rule filings. See SR-NYSEAmex-2011-59
and SR-NYSEArca-2011-57.
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Background
NYSE Rule 92, which applies to Exchange-listed securities,
generally prohibits member organizations from trading on a proprietary
basis ahead of, or along with, customer orders that are executable at
the same price as the proprietary order. The Rule contains several
exceptions that make it permissible for a member or member organization
to enter a proprietary order while representing a customer order that
could be executed at the same price, provided, among other things, that
the customer order is not for an account of an individual investor and
the customer has provided express permission. Current NYSE Rule 92 also
permits riskless transactions for the purpose of facilitating the
execution, on a riskless principal basis, of one or more customer
orders.
Proposal To Adopt Text of FINRA Rule 5320
In conjunction with its rules harmonization with FINRA, the
Exchange proposes to delete the text of NYSE Rule 92 and its
supplementary material and adopt the text of FINRA Rule 5320, with
certain technical changes, as NYSE Rule 5320. FINRA Rule 5320 generally
provides that a FINRA member that accepts and holds an order in an
equity security from its own customer or a customer of another broker-
dealer without immediately executing the order is prohibited from
trading that security on the same side of the market for its own
account at a price that would satisfy the customer order, unless it
immediately thereafter executes the customer order up to the size and
at the same or better price at which it traded for its own account.
Proposed NYSE Rule 5320 permits a member organization to trade a
security on the same side of the market for its own account at a price
that would satisfy a customer order in certain circumstances.\4\
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\4\ Although NYSE Rule 92 refers to member organizations and
members, proposed NYSE Rule 5320 would follow the structure of FINRA
Rule 5320 and refer to member organizations. Because all NYSE
members are associated with NYSE member organizations, proposed NYSE
Rule 5320 would apply to them.
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Large Orders and Institutional Accounts
The most notable exception to the customer order protection rule is
to allow member organizations to negotiate terms and conditions on the
acceptance of certain large-sized orders (orders of 10,000 shares or
more unless such orders are less than $100,000 in value) or orders from
institutional accounts as defined in NASD Rule 3110. Such terms and
conditions would permit the member organization to continue to trade
alongside or ahead of such customer orders if the customer agrees.
Specifically, under the proposed rule, a member organization would
be permitted to trade a security on the same side of the market for its
own account at a price that would satisfy a customer order provided
that the member organization provides clear and comprehensive written
disclosure to each customer at account opening and annually thereafter
that (a) discloses that the member organization may trade proprietarily
at prices that would satisfy the customer order, and (b) provides the
customer with a meaningful opportunity to opt in to the NYSE Rule 5320
protections with respect to all or any portion of its order.
If a customer does not opt in to the protections with respect to
all or any portion of its order, the member organization may reasonably
conclude that such customer has consented to the member organization
trading a security on the same side of the market for its own account
at a price that would satisfy the customer's order.\5\
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\5\ As is always the case, customers retain the right to
withdraw consent at any time. Therefore, a member organization's
reasonable conclusion that a customer has consented to the member
organization trading along with such customer's order is subject to
further instruction and modification from the customer.
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In lieu of providing written disclosure to customers at account
opening and annually thereafter, the proposed rule would permit member
organizations to provide clear and comprehensive oral disclosure to,
and obtain consent from, a customer on an order-by-order basis,
provided that the member organization documents who provided such
consent and that such consent evidences the customer's understanding of
the terms and conditions of the order. In addition, where a customer
has opted in to the NYSE Rule 5320 protections, a member organization
may still obtain consent on an order-by-order basis to trade ahead of
or along with an order from that customer, provided that the member
organization documents who provided such consent and that such consent
evidences the customer's understanding of the terms and conditions of
the order.
No-Knowledge Exception
The Exchange is also proposing to include a ``no-knowledge''
exception to its customer order protection rule. The proposed exception
would allow a proprietary trading unit of a member organization to
continue trading in a proprietary capacity and at prices that would
satisfy customer orders that were being held by another, separate
trading unit at the member organization. The no-knowledge exception
would be applicable with respect to NMS stocks, as defined in Rule 600
of SEC Regulation NMS. In order to avail itself of the no-knowledge
exception, a member organization must first implement and utilize an
effective system of internal controls (such as appropriate information
barriers) that operate to prevent the proprietary trading unit from
obtaining knowledge of the customer orders that are held at a separate
trading unit.
A member organization that structures its order handling practices
in NMS stocks to permit its proprietary and/or market-making desk to
trade at prices that would satisfy customer orders held by a separate
trading unit must disclose in writing to its customers, at account
opening and annually thereafter, a description of the manner in which
customer orders are handled by the member organization and the
circumstances under which the member organization may trade
proprietarily at its market-making desk at prices that would satisfy
the customer order.
Riskless Principal Exception
The Exchange's proposal also provides that the obligations under
this rule shall not apply to a member organization's proprietary trade
if such proprietary trade is for the purposes of
[[Page 53017]]
facilitating the execution, on a riskless principal basis, of another
order from a customer (whether its own customer or the customer of
another broker-dealer), provided that the member organization (a)
submits a report, contemporaneously with the execution of the
facilitated order, identifying the trade as riskless principal to the
Exchange and (b) has written policies and procedures to ensure that
riskless principal transactions relied upon for this exception comply
with applicable Exchange rules. At a minimum these policies and
procedures must require that the customer order was received prior to
the offsetting principal transaction, and that the offsetting principal
transaction is at the same price as the customer order exclusive of any
markup or markdown, commission equivalent or other fee and is allocated
to a riskless principal or customer account in a consistent manner and
within 60 seconds of execution.
Member organizations must have supervisory systems in place that
produce records that enable the member organization and the Exchange to
reconstruct accurately, readily, and in a time-sequenced manner all
orders on which a member organization relies in claiming this
exception.
ISO Exception
The proposed rule change also provides that a member organization
shall be exempt from the obligation to execute a customer order in a
manner consistent with NYSE Rule 5320 with regard to trading for its
own account that is the result of an intermarket sweep order routed in
compliance with Rule 600(b)(30)(ii) of SEC Regulation NMS where the
customer order is received after the member organization routed the
ISO. Where a member organization routes an ISO to facilitate a customer
order and that customer has consented to not receiving the better
prices obtained by the ISO, the member organization also shall be
exempt with respect to any trading for its own account that is the
result of the ISO with respect to the consenting customer's order.
Odd Lot and Bona Fide Error Exception
In addition, the Exchange proposes applying an exception for a
firm's proprietary trade that (1) offsets a customer odd lot order
(i.e., an order less than one round lot, which is typically 100 shares)
or (2) corrects a bona fide error. With respect to bona fide errors,
member organizations would be required to demonstrate and document the
basis upon which a transaction meets the bona fide error exception.
Minimum Price Improvement Standards
The proposed rule change establishes the minimum amount of price
improvement necessary for a member organization to execute an order on
a proprietary basis when holding an unexecuted limit order in that same
security without being required to execute the held limit order.
Order Handling Procedures
The proposed rule change provides that a member organization must
make every effort to execute a marketable customer order that it
receives fully and promptly. A member organization that is holding a
customer order that is marketable and has not been immediately executed
must make every effort to cross such order with any other order
received by the member organization on the other side of the market up
to the size of such order at a price that is no less than the best bid
and no greater than the best offer at the time that the subsequent
order is received by the member organization and that is consistent
with the terms of the orders. In the event that a member organization
is holding multiple orders on both sides of the market that have not
been executed, the member organization must make every effort to cross
or otherwise execute such orders in a manner that is reasonable and
consistent with the objectives of the proposed rule and with the terms
of the orders. A member organization can satisfy the crossing
requirement by contemporaneously buying from the seller and selling to
the buyer at the same price.
Trading Outside Normal Market Hours
A member organization generally may limit the life of a customer
order to the period of normal market hours of 9:30 a.m. to 4 p.m.
Eastern Time. However, if the customer and member organization agree to
the processing of the customer's order outside normal market hours, the
protections of proposed NYSE Rule 5320 would apply to that customer's
order(s) at all times the customer order is executable by the member
organization.
Conforming and Other Changes
The Exchange further proposes to make a conforming change to NYSE
Rule 900 to delete a reference to NYSE Rule 92 and to delete rule text
that provided that Rule 92 shall not preclude a member or member
organization from entering in the Off-Hours Trading Facility an
aggregate-price order to buy (sell) 15 or more securities coupled with
an identical order to sell (buy) when the member or member organization
holds an unexecuted closing-price order for a component security. The
Exchange has determined that, as part of the harmonization process, it
will not keep this exception to NYSE Rule 92. The Exchange further
notes that the NYSE Rule 900 reference is no longer necessary because
proposed NYSE Rule 5320 does not bar the entry of an order for a member
organization's own account when holding an unexecuted customer order;
rather, if the NYSE Rule 5320 customer order protections are
applicable, the member organization only needs to ensure that a
customer order is executed up to the size and the same or better price
at which it traded for its own account.
The Exchange has filed a series of operative delays for NYSE Rule
92(c)(3),\6\ which permits Exchange member organizations to submit
riskless principal orders to the Exchange, but requires them to submit
to a designated Exchange database a report of the execution of the
facilitated order. In extending the operative delay to September 12,
2011, the Exchange stated that it was premature to require firms to
meet the Exchange's Front End Systemic Capture reporting requirements
pending full harmonization of the respective customer order protection
rules with FINRA. In adopting NYSE Rule 5320 and deleting the text of
NYSE Rule 92 in its entirety, no additional operative delays for NYSE
Rule 92(c)(3) are necessary, as the Exchange will use the FINRA model
to capture riskless principal orders.\7\
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\6\ See Securities Exchange Act Release Nos. 56968 (Dec. 14,
2007), 72 FR 72432 (Dec. 20, 2007) (SR-NYSE-2007-114); 57682 (Apr.
17, 2008), 73 FR 22193 (Apr. 24, 2008) (SR-NYSE-2008-29); 59621
(Mar. 23, 2009), 74 FR 14179 (Mar. 30, 2009) (SR-NYSE-2009-30);
60396 (July 30, 2009), 74 FR 39126 (Aug. 5, 2009) (SR-NYSE-2009-73);
61251 (Dec. 29, 2009), 75 FR 482 (Jan. 5, 2010) (SR-NYSE-2009-129);
62541 (July 21, 2010), 75 FR 44042 (July 27, 2010) (SR-NYSE-2010-
52); 63455 (Dec. 7. 2010), 75 FR 77687 (Dec. 13, 2010) (SR-NYSE-
2010-76); and 64860 (July 12, 2011), 76 FR 42150 (July 18, 2011)
(SR-NYSE-2011-32).
\7\ All member organizations that would be subject to proposed
NYSE Rule 5320 also are subject to FINRA Rule 5320 and would
therefore report riskless principal transactions as required under
the FINRA Rule. There would be no need for them to separately report
riskless principal transactions to the Exchange.
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For consistency with Exchange rules, NYSE Rule 5320 will have
certain differences from FINRA Rule 5320. The Exchange proposes not to
include Supplementary Material .02(b) and portions of Supplementary
Material .06, which relate to OTC equity securities,
[[Page 53018]]
and to change all references from ``members'' to ``member
organizations.''
Implementation Date
The Exchange proposes to implement NYSE Rule 5320 on the same date
that FINRA implements FINRA Rule 5320, which FINRA has announced will
be September 12, 2011.\8\ The Exchange will provide notice of the
implementation date to its member organizations via an Information
Memorandum.
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\8\ See FINRA Regulatory Notice 11-24.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \9\ of the
Act, in general, and furthers the objectives of Section 6(b)(5) \10\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest. The Exchange believes that adopting the proposed rule
at the same time that FINRA implements a substantially similar rule
will contribute to investor protection by defining important parameters
by which member organizations must abide when trading proprietarily
while holding customer limit and market orders, and foster cooperation
by harmonizing requirements across self-regulatory organizations.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
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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 \11\ and Rule 19b-4(f)(6) thereunder.\12\
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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\11\ 15 U.S.C. 78s(b)(3)(A)(iii).
\12\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \13\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\14\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest.
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\13\ 17 CFR 240.19b-4(f)(6).
\14\ 17 CFR 240.19b-4(f)(6)(iii).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSE-2011-043 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2011-043. 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 such 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-2011-043 and should be
submitted on or before September 14, 2011.
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\15\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-21656 Filed 8-23-11; 8:45 am]
BILLING CODE 8011-01-P
