Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Deleting the Text of NYSE Arca Equities Rules 6.16 and 6.16A, and Adopting New NYSE Arca Equities 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), 53012-53015 [2011-21661]
Download as PDF
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53012
Federal Register / Vol. 76, No. 164 / Wednesday, August 24, 2011 / Notices
member organizations via an
Information Memorandum.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) 11 of the
Act, in general, and furthers the
objectives of Section 6(b)(5) 12 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.
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.
wreier-aviles on DSKGBLS3C1PROD with NOTICES
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 13 and Rule
19b–4(f)(6) thereunder.14 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
11 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
13 15 U.S.C. 78s(b)(3)(A)(iii).
14 17 CFR 240.19b–4(f)(6).
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) 15 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),16 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–NYSEAmex–2011–59 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–2011–59. 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
12 15
VerDate Mar<15>2010
15:40 Aug 23, 2011
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–
NYSEAmex–2011–59 and should be
submitted on or before September 14,
2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–21657 Filed 8–23–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65166; File No. SR–
NYSEArca–2011–57]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Deleting the Text of NYSE
Arca Equities Rules 6.16 and 6.16A,
and Adopting New NYSE Arca Equities
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) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that August 11,
2011, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
17 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
15 17
16 17
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CFR 240.19b–4(f)(6).
CFR 240.19b–4(f)(6)(iii).
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24AUN1
Federal Register / Vol. 76, No. 164 / Wednesday, August 24, 2011 / Notices
comments on the proposed rule change
from interested persons.
procedures, and trading outside normal
market hours.
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 Arca Equities Rules 6.16
and 6.16A, which limit trading ahead of
customer limit and market orders, and
adopt new NYSE Arca Equities 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.
Background
NYSE Arca Equities Rule 6.16
generally prohibits an ETP Holder from
trading on a proprietary basis ahead of
an unexecuted customer order.
However, NYSE Arca Equities Rule 6.16
allows an ETP Holder to negotiate
specific terms and conditions applicable
to the acceptance of limit orders
pursuant to certain conditions of the
rule, and NYSE Arca Equities Rule
6.16A allows an ETP Holder to negotiate
specific terms and conditions applicable
to the acceptance of market orders
pursuant to certain conditions of the
rule. NYSE Arca Equities Rule 6.16 is
based on NASD Interpretive Material
2110–2 and NYSE Arca Equities Rule
6.16A is based on NASD Rule 2111.5
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.
wreier-aviles on DSKGBLS3C1PROD with 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 Arca Equities Rules 6.16
and 6.16A, which limit trading ahead of
customer limit and market orders, and
adopt new NYSE Arca Equities Rule
5320 that is substantially the same as
FINRA Rule 5320.4 As with FINRA Rule
5320, proposed NYSE Arca Equities
Rule 5320 would prohibit trading ahead
of customer orders with certain
exceptions, including large order and
institutional account exceptions, a noknowledge 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 Arca Equities Rule 5320
also provides the same guidance as
FINRA Rule 5320 on minimum price
improvement standards, order handling
4 See Securities Exchange Act Release No. 63895
(February 11, 2011), 76 FR 9386 (February 17, 2011)
(SR–FINRA–2009–090). The Exchange’s affiliates,
New York Stock Exchange LLC and NYSE Amex
LLC, also have filed substantially similar rule
filings. See SR–NYSE–2011–43 and SR–
NYSEAmex–2011–59.
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15:40 Aug 23, 2011
Jkt 223001
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 Arca Equities Rules 6.16 and
6.16A and adopt the text of FINRA Rule
5320, with certain technical changes, as
NYSE Arca Equities 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 Arca Equities Rule
5320 permits an ETP Holder 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.
Large Orders and Institutional Accounts
The most notable exception to the
customer order protection rule is to
allow ETP Holders 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 ETP
Holder to continue to trade alongside or
ahead of such customer orders if the
customer agrees.
5 See Securities Exchange Act Release No. 64780
(June 30, 2011), 76 FR 39960 (July 7, 2011) (SR–
NYSEArca–2011–40).
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53013
Specifically, under the proposed rule,
an ETP Holder 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 ETP Holder provides
clear and comprehensive written
disclosure to each customer at account
opening and annually thereafter that (a)
Discloses that the ETP Holder 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 Arca Equities 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 ETP Holder may
reasonably conclude that such customer
has consented to the ETP Holder trading
a security on the same side of the
market for its own account at a price
that would satisfy the customer’s order.6
In lieu of providing written disclosure
to customers at account opening and
annually thereafter, the proposed rule
would permit ETP Holders to provide
clear and comprehensive oral disclosure
to, and obtain consent from, a customer
on an order-by-order basis, provided
that the ETP Holder 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 Arca Equities Rule 5320
protections, an ETP Holder 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 ETP Holder 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 an ETP
Holder 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 ETP Holder. The noknowledge exception would be
applicable with respect to NMS stocks,
as defined in Rule 600 of SEC
Regulation NMS. In order to avail itself
6 As is always the case, customers retain the right
to withdraw consent at any time. Therefore, an ETP
Holder’s reasonable conclusion that a customer has
consented to the ETP Holder trading along with
such customer’s order is subject to further
instruction and modification from the customer.
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Federal Register / Vol. 76, No. 164 / Wednesday, August 24, 2011 / Notices
wreier-aviles on DSKGBLS3C1PROD with NOTICES
of the no-knowledge exception, an ETP
Holder 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.
An ETP Holder that structures its
order handling practices in NMS stocks
to permit its proprietary and/or marketmaking 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 ETP
Holder and the circumstances under
which the ETP Holder 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 an ETP Holder’s
proprietary trade if such proprietary
trade is for the purposes of 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 ETP Holder (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.
ETP Holders must have supervisory
systems in place that produce records
that enable the ETP Holder and the
Exchange to reconstruct accurately,
readily, and in a time-sequenced
manner all orders on which an ETP
Holder relies in claiming this exception.
ISO Exception
The proposed rule change also
provides that an ETP Holder shall be
exempt from the obligation to execute a
customer order in a manner consistent
with NYSE Arca Equities Rule 5320
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15:40 Aug 23, 2011
Jkt 223001
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 ETP
Holder routed the ISO. Where an ETP
Holder routes an ISO to facilitate a
customer order and that customer has
consented to not receiving the better
prices obtained by the ISO, the ETP
Holder 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.
seller and selling to the buyer at the
same price.
Odd Lot and Bona Fide Error Exception
Conforming and Other Changes
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, ETP Holders would be
required to demonstrate and document
the basis upon which a transaction
meets the bona fide error exception.
For consistency with Exchange rules,
NYSE Arca Equities 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, in the Commentary of NYSE
Arca Equities Rule 5320 and to change
all references from ‘‘members’’ to ‘‘ETP
Holders.’’
Minimum Price Improvement Standards
Implementation Date
The proposed rule change establishes
the minimum amount of price
improvement necessary for an ETP
Holder 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.
The proposed rule change provides
that an ETP Holder must make every
effort to execute a marketable customer
order that it receives fully and
promptly. An ETP Holder 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 ETP Holder 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 ETP Holder and
that is consistent with the terms of the
orders. In the event that an ETP Holder
is holding multiple orders on both sides
of the market that have not been
executed, the ETP Holder 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. An ETP Holder
can satisfy the crossing requirement by
contemporaneously buying from the
Frm 00085
Fmt 4703
Sfmt 4703
An ETP Holder generally may limit
the life of a customer order to the period
of normal market hours of 6:30 a.m. to
1 p.m. Pacific Standard Time. However,
if the customer and ETP Holder agree to
the processing of the customer’s order
outside normal market hours, the
protections of proposed NYSE Arca
Equities Rule 5320 would apply to that
customer’s order(s) at all times the
customer order is executable by the ETP
Holder.
The Exchange proposes to implement
NYSE Arca Equities Rule 5320 on the
same date that FINRA implements
FINRA Rule 5320, which FINRA has
announced will be September 12, 2011.7
The Exchange will provide notice of the
implementation date to ETP Holders via
a Regulatory Information Bulletin.
2. Statutory Basis
Order Handling Procedures
PO 00000
Trading Outside Normal Market Hours
The proposed rule change is
consistent with Section 6(b) 8 of the Act,
in general, and furthers the objectives of
Section 6(b)(5) 9 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 ETP
Holders must abide when trading
proprietarily while holding customer
limit and market orders, and foster
cooperation by harmonizing
7 See
FINRA Regulatory Notice 11–24.
U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(5).
8 15
E:\FR\FM\24AUN1.SGM
24AUN1
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).
VerDate Mar<15>2010
15:40 Aug 23, 2011
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
11 17
1 15
14 17
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CFR 200.30–3(a)(12).
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2 17
E:\FR\FM\24AUN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
24AUN1
]]>Agencies
[Federal Register Volume 76, Number 164 (Wednesday, August 24, 2011)]
[Notices]
[Pages 53012-53015]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-21661]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65166; File No. SR-NYSEArca-2011-57]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Deleting the Text
of NYSE Arca Equities Rules 6.16 and 6.16A, and Adopting New NYSE Arca
Equities 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) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that August 11, 2011, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
[[Page 53013]]
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 delete the text of NYSE Arca Equities
Rules 6.16 and 6.16A, which limit trading ahead of customer limit and
market orders, and adopt new NYSE Arca Equities 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.
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 Arca Equities
Rules 6.16 and 6.16A, which limit trading ahead of customer limit and
market orders, and adopt new NYSE Arca Equities Rule 5320 that is
substantially the same as FINRA Rule 5320.\4\ As with FINRA Rule 5320,
proposed NYSE Arca Equities 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 Arca Equities 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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\4\ See Securities Exchange Act Release No. 63895 (February 11,
2011), 76 FR 9386 (February 17, 2011) (SR-FINRA-2009-090). The
Exchange's affiliates, New York Stock Exchange LLC and NYSE Amex
LLC, also have filed substantially similar rule filings. See SR-
NYSE-2011-43 and SR-NYSEAmex-2011-59.
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Background
NYSE Arca Equities Rule 6.16 generally prohibits an ETP Holder from
trading on a proprietary basis ahead of an unexecuted customer order.
However, NYSE Arca Equities Rule 6.16 allows an ETP Holder to negotiate
specific terms and conditions applicable to the acceptance of limit
orders pursuant to certain conditions of the rule, and NYSE Arca
Equities Rule 6.16A allows an ETP Holder to negotiate specific terms
and conditions applicable to the acceptance of market orders pursuant
to certain conditions of the rule. NYSE Arca Equities Rule 6.16 is
based on NASD Interpretive Material 2110-2 and NYSE Arca Equities Rule
6.16A is based on NASD Rule 2111.\5\
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\5\ See Securities Exchange Act Release No. 64780 (June 30,
2011), 76 FR 39960 (July 7, 2011) (SR-NYSEArca-2011-40).
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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 Arca Equities Rules 6.16
and 6.16A and adopt the text of FINRA Rule 5320, with certain technical
changes, as NYSE Arca Equities 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 Arca Equities Rule 5320 permits an ETP Holder 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.
Large Orders and Institutional Accounts
The most notable exception to the customer order protection rule is
to allow ETP Holders 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 ETP Holder to continue to trade alongside
or ahead of such customer orders if the customer agrees.
Specifically, under the proposed rule, an ETP Holder 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 ETP Holder provides clear and comprehensive written disclosure
to each customer at account opening and annually thereafter that (a)
Discloses that the ETP Holder 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 Arca Equities 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 ETP Holder may reasonably conclude
that such customer has consented to the ETP Holder trading a security
on the same side of the market for its own account at a price that
would satisfy the customer's order.\6\
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\6\ As is always the case, customers retain the right to
withdraw consent at any time. Therefore, an ETP Holder's reasonable
conclusion that a customer has consented to the ETP Holder 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 ETP
Holders to provide clear and comprehensive oral disclosure to, and
obtain consent from, a customer on an order-by-order basis, provided
that the ETP Holder 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 Arca Equities Rule 5320 protections, an ETP Holder 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 ETP Holder
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 an ETP Holder 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 ETP Holder. 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
[[Page 53014]]
of the no-knowledge exception, an ETP Holder 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.
An ETP Holder 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 ETP Holder and the circumstances under which
the ETP Holder 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 an ETP Holder's proprietary trade if such
proprietary trade is for the purposes of 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 ETP Holder (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.
ETP Holders must have supervisory systems in place that produce
records that enable the ETP Holder and the Exchange to reconstruct
accurately, readily, and in a time-sequenced manner all orders on which
an ETP Holder relies in claiming this exception.
ISO Exception
The proposed rule change also provides that an ETP Holder shall be
exempt from the obligation to execute a customer order in a manner
consistent with NYSE Arca Equities 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 ETP Holder routed the ISO. Where
an ETP Holder routes an ISO to facilitate a customer order and that
customer has consented to not receiving the better prices obtained by
the ISO, the ETP Holder 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,
ETP Holders 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 an ETP Holder 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 an ETP Holder must make
every effort to execute a marketable customer order that it receives
fully and promptly. An ETP Holder 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 ETP
Holder 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 ETP
Holder and that is consistent with the terms of the orders. In the
event that an ETP Holder is holding multiple orders on both sides of
the market that have not been executed, the ETP Holder 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. An ETP Holder 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
An ETP Holder generally may limit the life of a customer order to
the period of normal market hours of 6:30 a.m. to 1 p.m. Pacific
Standard Time. However, if the customer and ETP Holder agree to the
processing of the customer's order outside normal market hours, the
protections of proposed NYSE Arca Equities Rule 5320 would apply to
that customer's order(s) at all times the customer order is executable
by the ETP Holder.
Conforming and Other Changes
For consistency with Exchange rules, NYSE Arca Equities 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, in
the Commentary of NYSE Arca Equities Rule 5320 and to change all
references from ``members'' to ``ETP Holders.''
Implementation Date
The Exchange proposes to implement NYSE Arca Equities Rule 5320 on
the same date that FINRA implements FINRA Rule 5320, which FINRA has
announced will be September 12, 2011.\7\ The Exchange will provide
notice of the implementation date to ETP Holders via a Regulatory
Information Bulletin.
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\7\ See FINRA Regulatory Notice 11-24.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \8\ of the
Act, in general, and furthers the objectives of Section 6(b)(5) \9\ 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 ETP Holders must abide when trading proprietarily while
holding customer limit and market orders, and foster cooperation by
harmonizing
[[Page 53015]]
requirements across self-regulatory organizations.
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\8\ 15 U.S.C. 78f(b).
\9\ 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 \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.
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\10\ 15 U.S.C. 78s(b)(3)(A)(iii).
\11\ 17 CFR 240.19b-4(f)(6).
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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.
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\12\ 17 CFR 240.19b-4(f)(6).
\13\ 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-NYSEArca-2011-57 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2011-57. 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.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy.
Secretary.
[FR Doc. 2011-21661 Filed 8-23-11; 8:45 am]
BILLING CODE 8011-01-P
