Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of Proposed Rule Change To Codify Certain Traditional Trading Floor Functions That May Be Performed by Designated Market Makers, 71405-71410 [2011-29678]
Download as PDF
<![CDATA[
Federal Register / Vol. 76, No. 222 / Thursday, November 17, 2011 / Notices
A proposed rule change filed under
Rule 19b–4(f)(6) 11 normally does not
become operative for 30 days after the
date of the filing. However, pursuant to
Rule 19b–4(f)(6)(iii),12 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest.
FINRA has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
immediately upon filing. The
Commission is waiving the 30-day
operative period.13 The Commission
believes that waiving the 30-day
operative delay is consistent with the
protection of investors and the public
interest as the waiver will allow FINRA
to cross-reference the appropriate NYSE
rule and thereby reduce confusion
regarding the applicable NYSE rule
definition. The Commission, therefore,
designates the proposed rule change to
be operative upon filing with the
Commission.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–FINRA–2011–066 on the
subject line.
jlentini on DSK4TPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
proposed rule change, along with a brief description
and text of the proposed rule change, at least five
business days prior to the date of filing of the
proposed rule change, or such shorter time, as
designated by the Commission. FINRA has satisfied
this requirement.
11 17 CFR 240.19b–4(f)(6).
12 17 CFR 240.19b–4(f)(6)(iii).
13 For purposes only of waiving the operative
delay of this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
VerDate Mar<15>2010
17:25 Nov 16, 2011
Jkt 226001
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–FINRA–2011–066. This file
number should be included on the
subject line if email 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
FINRA. 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–FINRA–2011–066 and
should be submitted on or before
December 8, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–29723 Filed 11–16–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65735; File No. SR–
NYSEAmex–2011–86]
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
31, 2011, NYSE Amex LLC (the
‘‘Exchange’’ or ‘‘NYSE Amex’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
NYSE Amex Equities Rule 104 to codify
certain traditional Trading Floor 3
functions that may be performed by
Designated Market Makers (‘‘DMMs’’),4
to make Exchange systems available to
DMMs that would provide DMMs with
certain market information, to amend
the Exchange’s rules governing the
ability of DMMs to provide market
information to Floor brokers, and to
make conforming amendments to other
rules. The text of the proposed rule
change is available at the Exchange, the
Commission’s Public Reference Room,
and 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.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 NYSE Amex Equities Rule 6A defines the term
‘‘Trading Floor’’ to mean, in relevant part, ‘‘the
restricted-access physical areas designated by the
Exchange for the trading of securities.’’
4 NYSE Amex Equities Rule 2(i) defines the term
‘‘DMM’’ to mean an individual member, officer,
partner, employee or associated person of a DMM
unit who is approved by the Exchange to act in the
capacity of a DMM. NYSE Amex Equities Rule 2(j)
defines the term ‘‘DMM unit’’ as a member
organization or unit within a member organization
that has been approved to act as a DMM unit under
NYSE Amex Equities Rule 98.
2 17
Self-Regulatory Organizations; NYSE
Amex LLC; Notice of Filing of
Proposed Rule Change To Codify
Certain Traditional Trading Floor
Functions That May Be Performed by
Designated Market Makers
November 10, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
14 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00099
Fmt 4703
Sfmt 4703
71405
E:\FR\FM\17NON1.SGM
17NON1
71406
Federal Register / Vol. 76, No. 222 / Thursday, November 17, 2011 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
NYSE Amex Equities Rule 104 to codify
certain traditional Trading Floor
functions that may be performed by
DMMs. These functions were previously
described in the Floor Official Manual
for the New York Stock Exchange LLC
(‘‘NYSE’’). NYSE Amex conformed its
equity trading rules and practices to
those of the NYSE when it became a
subsidiary of NYSE Euronext on
October 1, 2008.5 In addition, the
Exchange proposes to amend its rules to
make Exchange systems available to
DMMs that would provide DMMs with
certain market information about
securities in which the DMM is
registered. The Exchange also proposes
to amend its rules governing the ability
of DMMs to provide market information
to Floor brokers. Finally, the Exchange
proposes to make clarifying and
conforming amendments to other rules.6
jlentini on DSK4TPTVN1PROD with NOTICES
Background
On October 24, 2008, the Commission
approved, as a pilot program, certain of
the rules that govern the current
operation of the NYSE.7 These rules are
all elements of the NYSE’s ‘‘New Market
Model.’’ 8 The New Market Model pilot
rules include NYSE Rule 104, which
sets forth certain affirmative obligations
of DMMs, the category of market
participant that replaced specialists.
DMMs have obligations with respect to
the quality of the markets in securities
to which they are assigned that are
similar to certain obligations formerly
held by specialists. NYSE Amex
adopted amendments to implement the
New Market Model, including
amendments to NYSE Amex Equities
Rule 104, on November 26, 2008.9
In addition to their trading functions,
DMMs provide support on the Trading
5 See Securities Exchange Act Release No. 58673
(September 29, 2008), 73 FR 57707 (October 3,
2008) (SR–NYSE–2008–60 and SR–Amex 2008–62)
(approving the merger).
6 NYSE has submitted substantially the same
proposed rule change to the Commission. See SR–
NYSE–2011–56.
7 See Securities Exchange Act Release No. 48845
(October 24, 2008), 73 FR 64379 (October 29, 2008)
(SR–NYSE–2008–46) (‘‘New Market Model
Approval Order’’).
8 The New Market Model pilot is currently
scheduled to expire on January 31, 2012. See
Securities Exchange Act Release No. 64773 (June
29, 2011), 76 FR 39453 (July 6, 2011) (SR–NYSE–
2011–43).
9 See Securities Exchange Act Release No. 59022
(November 26, 2008), 73 FR 73683 December 3,
2008) (SR–NYSEALTR–2008–10).
VerDate Mar<15>2010
17:25 Nov 16, 2011
Jkt 226001
Floor to assist in the efficient operation
of the Exchange market and maintain
fair and orderly markets. These Trading
Floor functions were performed by
specialists before the New Market
Model was adopted, and the functions
were described in the Exchange’s Floor
Official Manual.10 Under the New
Market Model, there continues to be a
need for DMMs to be permitted to
perform these Trading Floor functions.
As such, the Exchange proposes to
codify these Trading Floor functions
into NYSE Amex Equities Rule 104 by
adding a new subparagraph (j)(i).11
DMM Trading Floor Functions
There are four categories of Trading
Floor functions that DMMs may
perform: (1) Maintaining order among
Floor brokers manually trading at the
DMM’s assigned panel; (2) bringing
Floor brokers together to facilitate
trading; (3) assisting Floor brokers with
respect to their orders; and (4)
researching the status of orders or
questioned trades.
First, a DMM may maintain order
among Floor brokers manually trading
at the DMM’s assigned panel. For
example, where there is significant
agency interest in a security, the DMM
may help Floor Officials maintain order
by managing trading crowd activity and
facilitating the execution of one or more
Floor broker’s orders trading at the post.
Second, a DMM may bring Floor
brokers together to facilitate trading,
which may include the DMM acting as
10 See 2004 Floor Official Manual, Market
Surveillance June 2004 Edition, Chapter Two,
Section I.A. at 7 (‘‘specialist helps ensure that such
markets are fair, orderly, operationally efficient and
competitive with all other markets in those
securities’’), Section I.B.3. at 10–11 (‘‘[i]n opening
and reopening trading in a listed security, a
specialist should * * * [s]erve as the market
coordinator for the securities in which the specialist
is registered by exercising leadership and managing
trading crowd activity and promptly identifying
unusual market conditions that may affect orderly
trading in those securities, seeking the advice and
assistance of Floor Officials when appropriate’’ and
‘‘[a]ct as a catalyst in the markets for the securities
in which the specialist is registered, making all
reasonable efforts to bring buyers and sellers
together to facilitate the public pricing of orders,
without acting as principal unless reasonably
necessary’’), Section I.B.4. at 11 (‘‘In view of the
specialist’s central position in the Exchange’s
continuous two-way agency auction market, a
specialist should proceed as follows * * * [e]qually
and impartially provide accurate and timely market
information to all inquiring members in a
professional and courteous manner.’’), and Section
I.B.5. at 12 (A specialist should ‘‘[p]romptly provide
information when necessary to research the status
of an order or a questioned trade and cooperate
with other members in resolving and adjusting
errors.’’). Relevant excerpts of the 2004 Floor
Official Manual are attached as Exhibit 3 of this
filing.
11 The Exchange proposes to redesignate the rule
text currently set forth in section (j) as section (k)
of NYSE Amex Equities Rule 104.
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
a buyer or seller. This function is
consistent with the floor-based nature of
the Exchange’s hybrid market. For
example, if a DMM is aware that a Floor
broker representing buying interest
inquired about selling interest in one of
his or her assigned securities and later
a Floor broker representing selling
interest makes an inquiry about buying
interest, the assigned DMM may inform
the Floor broker representing the buying
interest of the other Floor broker’s
selling interest. In addition, the DMM
itself may provide contra-side interest to
a Floor broker representing interest at
the post.
Third, DMMs may assist Floor brokers
with respect to their orders by providing
information regarding the status of a
Floor broker’s orders, helping to resolve
errors or questioned trades, adjusting
errors, and cancelling or inputting Floor
broker agency interest on behalf of a
Floor broker. For example, if a Floor
broker’s handheld device is not
operational, the DMM may assist the
Floor broker by entering or canceling
broker interest on the Floor broker’s
behalf.12
Fourth, DMMs may research the
status of orders or questioned trades.
DMMs may do so on their own initiative
or at the request of the Exchange or a
Floor broker when a Floor broker’s
hand-held device is not operational,
when there is activity indicating that a
potentially erroneous order was entered
or a potentially erroneous trade was
executed, or when there otherwise is an
indication that improper activity may be
occurring.
DMM Access to Exchange Systems
The Exchange proposes to amend
NYSE Amex Equities Rule 104 to add
new subparagraph (j)(ii), which would
state that the Exchange may make
systems available to a DMM at the post
that display the following types of
information about securities in which
the DMM is registered: (A) Aggregated
information about buying and selling
interest; 13 (B) disaggregated information
about the price and size of any
individual order or Floor broker agency
interest file, also known as ‘‘e-Quotes,’’
12 The Exchange maintains records of whether a
Floor broker’s order is entered or cancelled by
Exchange systems under such circumstances.
13 Exchange systems make available to DMMs
aggregate information about the following interest
in securities in which the DMM is registered: (a) All
displayable interest submitted by off-Floor
participants; (b) all Minimum Display Reserve
Orders, including the reserve portion; (c) all
displayable Floor broker agency interest files (‘‘eQuotes’’); (d) all Minimum Display Reserve eQuotes, including the reserve portion; and (e) the
reserve quantity of Non-Display Reserve e-Quotes,
unless the Floor broker elects to exclude that
reserve quantity from availability to the DMM.
E:\FR\FM\17NON1.SGM
17NON1
jlentini on DSK4TPTVN1PROD with NOTICES
Federal Register / Vol. 76, No. 222 / Thursday, November 17, 2011 / Notices
except that Exchange systems would not
make available to DMMs information
about any order or e-Quote, or portion
thereof, that a market participant has
elected not to display to a DMM; and (C)
post-trade information. For the latter
two categories, the DMM would have
access to entering and clearing firm
information and, as applicable, the
badge number of the Floor broker
representing the order. The systems
would not contain any information
about the ultimate customer (i.e., the
name of the member or member
organization’s customer) in a
transaction. Aggregated information
about buying and selling interest and
post-trade information are currently
available to DMMs.
Under the proposed rule change,
Exchange systems would make available
to DMMs disaggregated information
about the following interest in securities
in which the DMM is registered: (a) The
price and size of all displayable interest
submitted by off-Floor participants; and
(b) all e-Quotes, including reserve eQuotes, that the Floor broker has not
elected to exclude from availability to
the DMM.14 The Exchange believes that
it is appropriate to provide DMMs with
this disaggregated order information
because the information will assist
DMMs in carrying out their Trading
Floor functions as described above. For
example, access to the disaggregated
order information will increase DMMs’
ability to assist Floor brokers with
respect to their orders and researching
the status of orders or questioned trades.
In addition, providing DMMs with
access to the disaggregated order
information will contribute to the
DMMs’ ability to carry out their
responsibility for managing the auction
market process at the Exchange, which
includes the function of bringing buyers
and sellers together to facilitate trading.
In addition, the proposed rule change
would have no impact on the
Exchange’s priority and parity rules;
DMM manual transactions would
continue to be required to yield to intraday public customer orders pursuant to
NYSE Amex Equities Rule 72(c)(xi). The
Exchange further notes that the manner
by which the DMM would access
disaggregated order information is
limited. For example, a DMM can access
the disaggregated order information
only while located at the post on the
Trading Floor. In addition, DMMs’
ability to access the disaggregated order
14 The Exchange previously permitted DMMs to
have access to Exchange systems that contained the
disaggregated order information described above.
The Exchange stopped making such information
available to DMMs on January 19, 2011. See
Information Memo 11–03.
VerDate Mar<15>2010
17:25 Nov 16, 2011
Jkt 226001
information is largely manual, in that
the DMM must query the specific
information about a particular security,
which limits the number of securities
about which disaggregated order
information can be accessed at any
given time. Exchange systems would not
provide any information to the
algorithmic trading systems of any
DMM unit,15 and would not support any
electronic dissemination of the
disaggregated order information to other
market participants. The Exchange notes
that market participants who do not
want the DMM to have access to
disaggregated order information have
the option to electronically enter dark
interest that is not visible to the DMM
in disaggregated form. The Exchange
also notes that the proposed rule change
would specifically prohibit DMMs from
using any trading information available
to them in Exchange systems, including
disaggregated order information, in a
manner that would violate the Exchange
rules or federal securities laws or
regulations.16
In addition, the Exchange notes that
any non-public market information that
a DMM receives through Exchange
systems would be subject to specific
restrictions as ‘‘non-public order
information’’ 17 under NYSE Amex
Equities Rule 98. For example, NYSE
Amex Equities Rule 98(c)(2)(A) would
require DMMs to maintain the
confidentiality of any such non-public
market information and would prohibit
the DMM member organization’s
departments, divisions, or aggregation
units that are not part of the DMM unit,
including investment banking, research,
and customer-facing departments, from
having access to that information. In
15 The order information in these systems would
be available for a DMM to view manually at the post
and as such is different from the advance order-byorder information that DMM trading algorithms
previously received before implementation of the
New Market Model pilot (sometimes referred to as
‘‘the look’’). Under the proposed rule change, as is
the case today, DMM trading algorithms would
have the same information with respect to orders
entered on the Exchange, Floor broker agency
interest files or reserve interest as is disseminated
to the public by the Exchange. See NYSE Amex
Equities Rule 104(b)(iii).
16 See Proposed NYSE Amex Equities Rule
104(j)(ii).
17 NYSE Amex Equities Rule 98(b)(7) defines the
term ‘‘non-public order’’ to mean ‘‘any order,
whether expressed electronically or verbally, or any
information regarding a reasonably imminent nonpublic transaction or series of transactions entered
or intended for entry or execution on the Exchange
and which is not publicly available on a real-time
basis via an Exchange-provided datafeed, such as
NYSE OpenBook® or otherwise not publicly
available. Non-public orders include order
information at the opening, re-openings, the close,
when the security is trading in slow mode, and
order information in the NYSE Display Book® that
is not available via NYSE OpenBook®.’’
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
71407
addition, NYSE Amex Equities Rule 98
sets forth restrictions on access to nonpublic order information by the offFloor locations of a DMM unit,
including restrictions on the ability of a
DMM located on the Trading Floor from
communicating directly with off-Floor
individuals or systems responsible for
making off-Floor trading decisions.18
The Exchange believes that the
proposed rule change would contribute
substantially to the fair and orderly
operation of the Exchange Trading
Floor, and that the benefits of that
contribution would significantly
outweigh any incremental benefit to the
DMMs by virtue of having access to
disaggregated order information. DMM
assistance at the post through the
performance of the Trading Floor
functions is an invaluable resource to
minimize any disruption to the market,
particularly if the Exchange is
experiencing a systems issue; the
Exchange systems that provide
disaggregated order information play a
pivotal role in that assistance, for
example by allowing DMMs to enter or
cancel orders on behalf of Floor brokers.
Allowing DMMs to have access to those
Exchange systems to perform the
Trading Floor functions is more efficient
than diverting Exchange resources to
attend to individual Floor broker issues,
particularly when the DMMs are ready
and able to perform the same functions.
In contrast, the proposed rule change
would provide DMMs with a
disaggregated format of information that
they already have access to on an
aggregated basis. Any potential value to
having order information on a
disaggregated basis is mitigated by the
fact that DMMs only have information
about orders at the Exchange, which
represent just a portion of the overall
volume of trading in Exchange-listed
stocks across the market. The
information is likely to be stale upon
receipt to the DMMs, thereby
diminishing any likelihood that the
information would be useful to DMMs
in connection with their electronic or
algorithmic trading. For example, the
DMMs would have to use a manual
process to access the information, the
DMMs’ access to disaggregated
information at any given time would be
limited to a single stock, and the
information would not be dynamically
updated to the DMM, in real time or
18 See NYSE Amex Equities Rules 98(d)(2)(B)(i)–
(iii), (f)(1)(A)(i)–(ii), and (f)(3)(C)(ii). In addition,
NYSE Amex Equities Rule 98(c)(2)(A)(ii) provides
that a DMM may make available to a Floor broker
associated with an approved person or member
organization any information that the DMM would
be permitted to provide under Exchange rules to an
unaffiliated Floor broker.
E:\FR\FM\17NON1.SGM
17NON1
71408
Federal Register / Vol. 76, No. 222 / Thursday, November 17, 2011 / Notices
otherwise. In addition, as described
above, all intra-day manual trades
entered by the DMM yield to public
orders pursuant to NYSE Amex Equities
Rule 72 and DMMs are restricted from
sharing order information pursuant to
NYSE Amex Equities Rule 98, both of
which limit any potential for the DMMs
to use the disaggregated order
information in connection with their
manual trading.
jlentini on DSK4TPTVN1PROD with NOTICES
Conforming Amendments
To reflect the information that would
be available to DMMs through Exchange
systems, the Exchange proposes
amendments to NYSE Amex Equities
Rules 70(e), (f) and (i) and 70.25(a)(vii)
to specify which information is
available to a DMM through Exchange
systems. The Exchange also proposes
changes to NYSE Amex Equities Rule 70
to specify what information about
e-Quotes is available to the DMM.
In addition, the Exchange proposes to
delete NYSE Amex Equities Rule
104(a)(6), which currently provides that
DMMs, trading assistants and anyone
acting on their behalf are prohibited
from using the Display Book® system to
access information about Floor broker
agency interest excluded from the
aggregated agency interest and
Minimum Display Reserve Order
information other than for the purpose
of effecting transactions that are
reasonably imminent where such Floor
broker agency and Minimum Display
Reserve Order interest information is
necessary to effect such transaction.
Ability of DMMs To Provide Market
Information on the Trading Floor
The Exchange proposes to modify the
terms under which DMMs would be
permitted to provide market information
to Floor brokers and visitors on the
Trading Floor. Specifically, NYSE Amex
Equities Rule 104(j)(iii) would permit a
DMM to provide the market information
to which he or she has access under
proposed NYSE Amex Equities Rule
104(j)(ii) to: (1) A Floor broker in
response to an inquiry in the normal
course of business; or (2) a visitor to the
Trading Floor for the purpose of
demonstrating methods of trading. This
aspect of the proposal builds on and
modifies current NYSE Amex Equities
Rule 115, and the Exchange therefore
proposes to delete that Rule, which
covers the same subject.19
Currently, NYSE Amex Equities Rule
115 provides that a DMM may disclose
market information for three purposes.
19 NYSE Amex Equities Rule 115 will be
redesignated as ‘‘Reserved.’’ The Exchange further
proposes to make conforming amendments to NYSE
Amex Equities Rules 13 and 104(a)(6).
VerDate Mar<15>2010
17:25 Nov 16, 2011
Jkt 226001
First, a DMM may disclose market
information for the purpose of
demonstrating the methods of trading to
visitors to the Trading Floor. This aspect
of current NYSE Amex Equities Rule
115 would be replicated in proposed
NYSE Amex Equities Rule 104(j)(iii)(B).
Second, a DMM may disclose market
information to other market centers in
order to facilitate the operation of the
Intermarket Trading System (‘‘ITS’’).
This text is obsolete as the ITS Plan has
been eliminated and therefore would
not be included in amended NYSE
Amex Equities Rule 104.20 Third, a
DMM may, while acting in a market
making capacity, provide information
about buying or selling interest in the
market, including (a) Aggregated buying
or selling interest contained in Floor
broker agency interest files other than
interest the broker has chosen to
exclude from the aggregated buying and
selling interest, (b) aggregated interest of
Minimum Display Reserve Orders and
(c) the interest included in DMM
interest files, excluding Capital
Commitment Schedule (‘‘CCS’’) interest
as described in NYSE Amex Equities
Rule 1000(c), in response to an inquiry
from a member conducting a market
probe 21 in the normal course of
business.
Proposed NYSE Amex Equities Rule
104(j)(iii) would permit DMMs to
provide Floor brokers not only with the
same aggregated order information that
DMMs currently are permitted to
provide under NYSE Amex Equities
Rule 115 but also with the disaggregated
and post-trade order information
described above.22 Broadening the
scope of information that DMMs can
provide Floor brokers will assist DMMs
with carrying out their historical
function of bringing Floor brokers
together to facilitate trading. In addition,
the Exchange notes that NYSE Amex
Equities Rule 115 allowed Exchange
specialists to provide disaggregated
order information to Floor brokers prior
to adoption of the Hybrid Market.23
20 See Securities Exchange Act Release No. 55397
(March 5, 2007), 72 FR 11066 (March 12, 2007)
(Intermarket Trading System; Notice of Filing and
Immediate Effectiveness of the Twenty Fourth
Amendment to the ITS Plan Relating to the
Elimination of the ITS Plan).
21 Generally, a market probe refers to when a
Floor broker is seeking to ascertain the depth of the
market in a security to determine at what price
point a security may trade. However, it is a term
of art whose meaning is not codified.
22 Because DMMs on the Trading Floor do not
have access to CCS interest information, the
proposed rule does not specify that DMMs would
not be disseminating such information.
23 See NYSE Regulation Information Memo 05–5
(stating that, under NYSE Rule 115, specialists may
disclose the identity of the members or member
organizations representing any orders entrusted to
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
Moreover, as noted above, both Floor
brokers and off-Floor participants have
the ability to enter partially or
completely ‘‘dark’’ orders that are not
visible to the DMM, and DMMs
therefore would be unable to
disseminate information about such
‘‘dark’’ orders or the dark portion of the
orders in response to an inquiry from a
Floor broker. When providing
information, the individual DMM is
responsible for fairly and impartially
providing accurate and timely
information to all inquiring Floor
brokers about buying and selling
interest in his or her assigned security.
Proposed NYSE Amex Equities Rule
104(j)(iii) also would permit a DMM to
provide market information to a Floor
broker in response to a specific request
by the Floor broker to the DMM at the
post, rather than specifying that the
information must be provided ‘‘in
response to an inquiry from a member
conducting a market probe in the
normal course of business,’’ as currently
provided in NYSE Amex Equities Rule
115. The Exchange believes that the
term ‘‘market probe’’ no longer
accurately reflects the manner in which
DMMs and Floor brokers interact on the
Trading Floor. Rather, the Exchange
believes that the Floor broker’s normal
course of business, as an agent for
customers, includes both seeking market
probes into the depth of the market as
well as seeking out willing contra-side
buyers and sellers in a particular
security. In addition, the rule would
specify that a Floor broker may not
submit an inquiry to the DMM by
electronic means and that the DMM may
not use electronic means to transmit
market information to a Floor broker in
response an inquiry. Under the
proposed rule change, Floor brokers
would not have access to Exchange
systems that provide disaggregated
order information, and they would only
be able to access such market
information through a direct interaction
with a DMM at the post.
The Exchange believes that providing
Floor brokers with access to the
disaggregated order information would
serve a valuable function by increasing
the ability of Floor brokers to source
liquidity and provide price discovery
for block transactions. In particular, the
ability of Floor brokers to receive the
disaggregated order information should,
the specialist). The NYSE amended Rule 115 in
connection with the Hybrid Market because at that
time, there was no way for Floor brokers to enter
fully dark electronic interest. Now that NYSE and
Exchange systems can accept fully dark electronic
interest from both Floor brokers and off-Floor
participants, the Hybrid Market change to NYSE
Rule 115 has been obviated.
E:\FR\FM\17NON1.SGM
17NON1
Federal Register / Vol. 76, No. 222 / Thursday, November 17, 2011 / Notices
jlentini on DSK4TPTVN1PROD with NOTICES
in turn, enhance their ability to facilitate
transactions for their customers by
identifying market participants with
trading interest that could trade with the
Floor brokers’ customers. Floor brokers
have historically served this role on
behalf of their customers, which include
institutional clients and block-trading
desks, and they continue to perform this
agency function today. The Exchange
notes that Floor brokers continue to be
subject to their existing obligations with
respect to Floor trading and access to
information. In particular, Floor brokers
remain subject to the restrictions in
Section 11(a) of the Securities Exchange
Act of 1934 (the ‘‘Act’’) and the rule
thereunder, which effectively prohibit
Floor brokers from effecting transactions
for their own account, the account of an
associated person, or an account with
respect to which the member, member
organization, or an associated person
thereof exercises investment
discretion.24
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the requirements of Section 6(b) of the
Act,25 in general, and Section 6(b)(5) of
the Act,26 in particular, in that it is
designed to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism for a free and open market
and a national market system and, in
general, to protect investors and the
public interest. In particular, the
proposed rule change clarifies that
DMMs may perform certain defined
Trading Floor functions, which were
previously performed by specialists, in
furtherance of the efficient, fair, and
orderly operation of the Exchange. In
addition, increasing the amount of
information, including disaggregated
order information, that a DMM is
permitted to view and provide to Floor
brokers would further the ability of
DMMs to carry out the defined Trading
Floor functions and, as a result, is
designed to remove impediments to and
perfect the mechanism of a free and
open market through the efficient
operation of the Exchange, in particular
by facilitating the bringing of buyers and
sellers together. Although a vast
majority of the transactions executed on
the Exchange are automated, Floor
brokers continue to play an important
role for customers in those transactions
24 See
also NYSE Amex Equities Rule 90.
U.S.C. 78f(b).
26 15 U.S.C. 78f(b)(5).
25 15
VerDate Mar<15>2010
17:25 Nov 16, 2011
Jkt 226001
that require the expertise of a
professional trading floor agent,
including engaging in price discovery
and sourcing liquidity for block
transactions. While the disaggregated
order information that would be
available to DMMs and Floor brokers
under the proposed rule change is
important to them in carrying out their
unique roles in a floor trading
environment, the Exchange believes this
information would not be material to
market participants executing
automated orders. In addition, the
means of access by DMMs and Floor
brokers to the disaggregated order
information is largely manual.
Accordingly, the Exchange believes that
access to disaggregated order
information as set forth in this proposed
rule change provides no unfair
advantage to DMMs or Floor brokers. In
addition, as noted above, DMMs would
be specifically prohibited from using the
market information available through
Exchange systems for any purpose that
would violate Exchange rules or federal
securities laws or regulations.
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
As the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
71409
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 email to rulecomments@sec.gov. Please include File
Number SR–NYSEAmex–2011–86 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–2011–86. This
file number should be included on the
subject line if email 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 NW.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. The text of the proposed
rule change is available on the
Commission’s Web site at https://
www.sec.gov. 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–2011–86 and should be
submitted on or before December 8,
2011.
E:\FR\FM\17NON1.SGM
17NON1
71410
Federal Register / Vol. 76, No. 222 / Thursday, November 17, 2011 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–29678 Filed 11–16–11; 8:45 am]
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65730; File No. SR–
NYSEArca–2011–79]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the NYSE Arca
Options Fee Schedule To Modify the
Fees Relating to Qualified Contingent
Cross Orders
November 10, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that, on
November 1, 2011, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or the ‘‘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 Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Options Fee Schedule (‘‘Fee
Schedule’’) to modify the fees relating to
Qualified Contingent Cross (‘‘QCC’’)
orders. The text of the proposed rule
change is available at the Exchange, the
Commission’s Public Reference Room,
and www.nyse.com.
jlentini on DSK4TPTVN1PROD with NOTICES
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,
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Mar<15>2010
17:25 Nov 16, 2011
Jkt 226001
1. Purpose
The purpose of the proposal is to
modify the fees relating to QCC orders.
Specifically, the Exchange intends to
adopt a rebate of $.10 per contract for
executed QCC orders. The rebate will be
credited to the executing Floor Broker.
The Exchange notes that the terms of
a QCC order are negotiated and agreed
to prior to being brought to an exchange
for possible execution. In bringing a
QCC order to the Exchange for
execution, OTP Holders have two
primary means of doing so. They can
configure their systems to deliver the
QCC order to the Exchange matching
engines for validation and execution.
Alternatively they can utilize the
services of another OTP Holder acting as
a Floor Broker. In turn, the Floor Broker
who is in receipt of such an order can
enter the order through an Exchangeprovided system 3 to be delivered to the
Exchange matching engine for
validation and potential execution. In
light of the fact that the Exchange does
not offer a front-end for order entry,
unlike some of the competing
exchanges,4 the Exchange believes it is
necessary from a competitive standpoint
to offer this rebate to the executing Floor
Broker on a QCC order. The Exchange
expects that the rebate offered to
executing Floor Brokers will allow them
to price their services at a level that will
enable them to attract QCC order flow
from participants who would otherwise
utilize an existing front-end order entry
mechanism offered by the Exchange’s
competitors instead of incurring the cost
in time and money to develop their own
internal systems to be able to deliver
QCC orders directly to the Exchange
systems. To the extent that Floor
Brokers are able to attract these QCC
orders, they will gain important
information that will allow them to
solicit the parties to the QCC orders for
3 Floor Brokers are required by NYSE Arca
Options Rule 6.67 to have systematized orders prior
to representing them in open outcry. Using the
same Electronic Order Capture System, Floor
Brokers will be able to enter QCC orders for
validation by the Exchange matching engines and
potential execution.
4 The International Securities Exchange offers
PRECISE TRADE as a means for users to enter
orders and Chicago Board Options Exchange has a
similar front-end order entry system called PULSE.
Such systems do not require users to develop their
own internal front-end order entry systems and may
provide savings to users in terms of development
time and costs.
PO 00000
Frm 00104
Fmt 4703
Sfmt 4703
participation in other trades, which will
in turn benefit all other Exchange
participants through the additional
liquidity and price discovery that may
occur as a result. The Exchange notes
that at least two other exchanges offer a
similar rebate.5
The proposed change will be
operative on November 1, 2011.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6(b) 6 of the
Securities Exchange Act of 1934 (the
‘‘Act’’), in general, and Section 6(b)(4) 7
of the Act, in particular, in that it is
designed to provide for the equitable
allocation of reasonable dues, fees, and
other charges among its members and
other persons using its facilities.
The Exchange believes the proposed
$.10 per contract rebate for Floor
Brokers who enter QCC orders that
execute is reasonable because it will
allow Floor Brokers the opportunity to
compete for QCC orders that would
otherwise be entered into front-end
order entry systems of competing
exchanges.8 The proposed rebate is
comparable to that found on other
exchanges 9 in that it is being offered to
Floor Brokers as an inducement that
may allow them to competitively price
their services offered to all participants.
To the extent that the rebate is
successful in attracting additional order
flow to the Exchange, all participants
should benefit. As such, the Exchange
believes that the rebate is appropriate
and reasonable.
The Exchange believes the proposal to
adopt a $.10 per contract rebate is
equitable and not unfairly
discriminatory because it would
uniformly apply to all QCC orders
entered by a Floor Broker for validation
by the system and potential execution.
The rebate is not unfairly discriminatory
to firms that enter QCC orders directly
into the NYSE Arca System through
electronic connection, because the fee
for the QCC order is the same whether
it is entered electronically or through a
Floor Broker. In addition, under
Commentary .01 to Arca Options Rule
6.90, only Floor Brokers may enter a
QCC order from the Floor; therefore,
5 See Securities Exchange Act Release No. 65472
(October 3, 2011), 76 FR 62887 (October 11, 2011)
(SR–NYSEAmex–2011–72) and NASDAQ OMX
PHLX fee schedule dated September 12, 2011, page
21 (describing a Floor Broker Subsidy that can
range as high as $.09 per contract), available at
https://www.nasdaqtrader.com/content/
marketregulation/membership/phlx/feesched.pdf.
6 15 U.S.C. 78f(b).
7 15 U.S.C. 78f(b)(4).
8 See supra note 4.
9 See supra note 5.
E:\FR\FM\17NON1.SGM
17NON1
]]>Agencies
[Federal Register Volume 76, Number 222 (Thursday, November 17, 2011)]
[Notices]
[Pages 71405-71410]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29678]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65735; File No. SR-NYSEAmex-2011-86]
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing
of Proposed Rule Change To Codify Certain Traditional Trading Floor
Functions That May Be Performed by Designated Market Makers
November 10, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 31, 2011, NYSE Amex LLC (the ``Exchange'' or ``NYSE Amex'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the self-regulatory organization. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend NYSE Amex Equities Rule 104 to
codify certain traditional Trading Floor \3\ functions that may be
performed by Designated Market Makers (``DMMs''),\4\ to make Exchange
systems available to DMMs that would provide DMMs with certain market
information, to amend the Exchange's rules governing the ability of
DMMs to provide market information to Floor brokers, and to make
conforming amendments to other rules. The text of the proposed rule
change is available at the Exchange, the Commission's Public Reference
Room, and www.nyse.com.
---------------------------------------------------------------------------
\3\ NYSE Amex Equities Rule 6A defines the term ``Trading
Floor'' to mean, in relevant part, ``the restricted-access physical
areas designated by the Exchange for the trading of securities.''
\4\ NYSE Amex Equities Rule 2(i) defines the term ``DMM'' to
mean an individual member, officer, partner, employee or associated
person of a DMM unit who is approved by the Exchange to act in the
capacity of a DMM. NYSE Amex Equities Rule 2(j) defines the term
``DMM unit'' as a member organization or unit within a member
organization that has been approved to act as a DMM unit under NYSE
Amex Equities Rule 98.
---------------------------------------------------------------------------
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 71406]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend NYSE Amex Equities Rule 104 to
codify certain traditional Trading Floor functions that may be
performed by DMMs. These functions were previously described in the
Floor Official Manual for the New York Stock Exchange LLC (``NYSE'').
NYSE Amex conformed its equity trading rules and practices to those of
the NYSE when it became a subsidiary of NYSE Euronext on October 1,
2008.\5\ In addition, the Exchange proposes to amend its rules to make
Exchange systems available to DMMs that would provide DMMs with certain
market information about securities in which the DMM is registered. The
Exchange also proposes to amend its rules governing the ability of DMMs
to provide market information to Floor brokers. Finally, the Exchange
proposes to make clarifying and conforming amendments to other
rules.\6\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 58673 (September 29,
2008), 73 FR 57707 (October 3, 2008) (SR-NYSE-2008-60 and SR-Amex
2008-62) (approving the merger).
\6\ NYSE has submitted substantially the same proposed rule
change to the Commission. See SR-NYSE-2011-56.
---------------------------------------------------------------------------
Background
On October 24, 2008, the Commission approved, as a pilot program,
certain of the rules that govern the current operation of the NYSE.\7\
These rules are all elements of the NYSE's ``New Market Model.'' \8\
The New Market Model pilot rules include NYSE Rule 104, which sets
forth certain affirmative obligations of DMMs, the category of market
participant that replaced specialists. DMMs have obligations with
respect to the quality of the markets in securities to which they are
assigned that are similar to certain obligations formerly held by
specialists. NYSE Amex adopted amendments to implement the New Market
Model, including amendments to NYSE Amex Equities Rule 104, on November
26, 2008.\9\
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 48845 (October 24,
2008), 73 FR 64379 (October 29, 2008) (SR-NYSE-2008-46) (``New
Market Model Approval Order'').
\8\ The New Market Model pilot is currently scheduled to expire
on January 31, 2012. See Securities Exchange Act Release No. 64773
(June 29, 2011), 76 FR 39453 (July 6, 2011) (SR-NYSE-2011-43).
\9\ See Securities Exchange Act Release No. 59022 (November 26,
2008), 73 FR 73683 December 3, 2008) (SR-NYSEALTR-2008-10).
---------------------------------------------------------------------------
In addition to their trading functions, DMMs provide support on the
Trading Floor to assist in the efficient operation of the Exchange
market and maintain fair and orderly markets. These Trading Floor
functions were performed by specialists before the New Market Model was
adopted, and the functions were described in the Exchange's Floor
Official Manual.\10\ Under the New Market Model, there continues to be
a need for DMMs to be permitted to perform these Trading Floor
functions. As such, the Exchange proposes to codify these Trading Floor
functions into NYSE Amex Equities Rule 104 by adding a new subparagraph
(j)(i).\11\
---------------------------------------------------------------------------
\10\ See 2004 Floor Official Manual, Market Surveillance June
2004 Edition, Chapter Two, Section I.A. at 7 (``specialist helps
ensure that such markets are fair, orderly, operationally efficient
and competitive with all other markets in those securities''),
Section I.B.3. at 10-11 (``[i]n opening and reopening trading in a
listed security, a specialist should * * * [s]erve as the market
coordinator for the securities in which the specialist is registered
by exercising leadership and managing trading crowd activity and
promptly identifying unusual market conditions that may affect
orderly trading in those securities, seeking the advice and
assistance of Floor Officials when appropriate'' and ``[a]ct as a
catalyst in the markets for the securities in which the specialist
is registered, making all reasonable efforts to bring buyers and
sellers together to facilitate the public pricing of orders, without
acting as principal unless reasonably necessary''), Section I.B.4.
at 11 (``In view of the specialist's central position in the
Exchange's continuous two-way agency auction market, a specialist
should proceed as follows * * * [e]qually and impartially provide
accurate and timely market information to all inquiring members in a
professional and courteous manner.''), and Section I.B.5. at 12 (A
specialist should ``[p]romptly provide information when necessary to
research the status of an order or a questioned trade and cooperate
with other members in resolving and adjusting errors.''). Relevant
excerpts of the 2004 Floor Official Manual are attached as Exhibit 3
of this filing.
\11\ The Exchange proposes to redesignate the rule text
currently set forth in section (j) as section (k) of NYSE Amex
Equities Rule 104.
---------------------------------------------------------------------------
DMM Trading Floor Functions
There are four categories of Trading Floor functions that DMMs may
perform: (1) Maintaining order among Floor brokers manually trading at
the DMM's assigned panel; (2) bringing Floor brokers together to
facilitate trading; (3) assisting Floor brokers with respect to their
orders; and (4) researching the status of orders or questioned trades.
First, a DMM may maintain order among Floor brokers manually
trading at the DMM's assigned panel. For example, where there is
significant agency interest in a security, the DMM may help Floor
Officials maintain order by managing trading crowd activity and
facilitating the execution of one or more Floor broker's orders trading
at the post.
Second, a DMM may bring Floor brokers together to facilitate
trading, which may include the DMM acting as a buyer or seller. This
function is consistent with the floor-based nature of the Exchange's
hybrid market. For example, if a DMM is aware that a Floor broker
representing buying interest inquired about selling interest in one of
his or her assigned securities and later a Floor broker representing
selling interest makes an inquiry about buying interest, the assigned
DMM may inform the Floor broker representing the buying interest of the
other Floor broker's selling interest. In addition, the DMM itself may
provide contra-side interest to a Floor broker representing interest at
the post.
Third, DMMs may assist Floor brokers with respect to their orders
by providing information regarding the status of a Floor broker's
orders, helping to resolve errors or questioned trades, adjusting
errors, and cancelling or inputting Floor broker agency interest on
behalf of a Floor broker. For example, if a Floor broker's handheld
device is not operational, the DMM may assist the Floor broker by
entering or canceling broker interest on the Floor broker's behalf.\12\
---------------------------------------------------------------------------
\12\ The Exchange maintains records of whether a Floor broker's
order is entered or cancelled by Exchange systems under such
circumstances.
---------------------------------------------------------------------------
Fourth, DMMs may research the status of orders or questioned
trades. DMMs may do so on their own initiative or at the request of the
Exchange or a Floor broker when a Floor broker's hand-held device is
not operational, when there is activity indicating that a potentially
erroneous order was entered or a potentially erroneous trade was
executed, or when there otherwise is an indication that improper
activity may be occurring.
DMM Access to Exchange Systems
The Exchange proposes to amend NYSE Amex Equities Rule 104 to add
new subparagraph (j)(ii), which would state that the Exchange may make
systems available to a DMM at the post that display the following types
of information about securities in which the DMM is registered: (A)
Aggregated information about buying and selling interest; \13\ (B)
disaggregated information about the price and size of any individual
order or Floor broker agency interest file, also known as ``e-Quotes,''
[[Page 71407]]
except that Exchange systems would not make available to DMMs
information about any order or e-Quote, or portion thereof, that a
market participant has elected not to display to a DMM; and (C) post-
trade information. For the latter two categories, the DMM would have
access to entering and clearing firm information and, as applicable,
the badge number of the Floor broker representing the order. The
systems would not contain any information about the ultimate customer
(i.e., the name of the member or member organization's customer) in a
transaction. Aggregated information about buying and selling interest
and post-trade information are currently available to DMMs.
---------------------------------------------------------------------------
\13\ Exchange systems make available to DMMs aggregate
information about the following interest in securities in which the
DMM is registered: (a) All displayable interest submitted by off-
Floor participants; (b) all Minimum Display Reserve Orders,
including the reserve portion; (c) all displayable Floor broker
agency interest files (``e-Quotes''); (d) all Minimum Display
Reserve e-Quotes, including the reserve portion; and (e) the reserve
quantity of Non-Display Reserve e-Quotes, unless the Floor broker
elects to exclude that reserve quantity from availability to the
DMM.
---------------------------------------------------------------------------
Under the proposed rule change, Exchange systems would make
available to DMMs disaggregated information about the following
interest in securities in which the DMM is registered: (a) The price
and size of all displayable interest submitted by off-Floor
participants; and (b) all e-Quotes, including reserve e-Quotes, that
the Floor broker has not elected to exclude from availability to the
DMM.\14\ The Exchange believes that it is appropriate to provide DMMs
with this disaggregated order information because the information will
assist DMMs in carrying out their Trading Floor functions as described
above. For example, access to the disaggregated order information will
increase DMMs' ability to assist Floor brokers with respect to their
orders and researching the status of orders or questioned trades. In
addition, providing DMMs with access to the disaggregated order
information will contribute to the DMMs' ability to carry out their
responsibility for managing the auction market process at the Exchange,
which includes the function of bringing buyers and sellers together to
facilitate trading. In addition, the proposed rule change would have no
impact on the Exchange's priority and parity rules; DMM manual
transactions would continue to be required to yield to intra-day public
customer orders pursuant to NYSE Amex Equities Rule 72(c)(xi). The
Exchange further notes that the manner by which the DMM would access
disaggregated order information is limited. For example, a DMM can
access the disaggregated order information only while located at the
post on the Trading Floor. In addition, DMMs' ability to access the
disaggregated order information is largely manual, in that the DMM must
query the specific information about a particular security, which
limits the number of securities about which disaggregated order
information can be accessed at any given time. Exchange systems would
not provide any information to the algorithmic trading systems of any
DMM unit,\15\ and would not support any electronic dissemination of the
disaggregated order information to other market participants. The
Exchange notes that market participants who do not want the DMM to have
access to disaggregated order information have the option to
electronically enter dark interest that is not visible to the DMM in
disaggregated form. The Exchange also notes that the proposed rule
change would specifically prohibit DMMs from using any trading
information available to them in Exchange systems, including
disaggregated order information, in a manner that would violate the
Exchange rules or federal securities laws or regulations.\16\
---------------------------------------------------------------------------
\14\ The Exchange previously permitted DMMs to have access to
Exchange systems that contained the disaggregated order information
described above. The Exchange stopped making such information
available to DMMs on January 19, 2011. See Information Memo 11-03.
\15\ The order information in these systems would be available
for a DMM to view manually at the post and as such is different from
the advance order-by-order information that DMM trading algorithms
previously received before implementation of the New Market Model
pilot (sometimes referred to as ``the look''). Under the proposed
rule change, as is the case today, DMM trading algorithms would have
the same information with respect to orders entered on the Exchange,
Floor broker agency interest files or reserve interest as is
disseminated to the public by the Exchange. See NYSE Amex Equities
Rule 104(b)(iii).
\16\ See Proposed NYSE Amex Equities Rule 104(j)(ii).
---------------------------------------------------------------------------
In addition, the Exchange notes that any non-public market
information that a DMM receives through Exchange systems would be
subject to specific restrictions as ``non-public order information''
\17\ under NYSE Amex Equities Rule 98. For example, NYSE Amex Equities
Rule 98(c)(2)(A) would require DMMs to maintain the confidentiality of
any such non-public market information and would prohibit the DMM
member organization's departments, divisions, or aggregation units that
are not part of the DMM unit, including investment banking, research,
and customer-facing departments, from having access to that
information. In addition, NYSE Amex Equities Rule 98 sets forth
restrictions on access to non-public order information by the off-Floor
locations of a DMM unit, including restrictions on the ability of a DMM
located on the Trading Floor from communicating directly with off-Floor
individuals or systems responsible for making off-Floor trading
decisions.\18\
---------------------------------------------------------------------------
\17\ NYSE Amex Equities Rule 98(b)(7) defines the term ``non-
public order'' to mean ``any order, whether expressed electronically
or verbally, or any information regarding a reasonably imminent non-
public transaction or series of transactions entered or intended for
entry or execution on the Exchange and which is not publicly
available on a real-time basis via an Exchange-provided datafeed,
such as NYSE OpenBook[supreg] or otherwise not publicly available.
Non-public orders include order information at the opening, re-
openings, the close, when the security is trading in slow mode, and
order information in the NYSE Display Book[supreg] that is not
available via NYSE OpenBook[supreg].''
\18\ See NYSE Amex Equities Rules 98(d)(2)(B)(i)-(iii),
(f)(1)(A)(i)-(ii), and (f)(3)(C)(ii). In addition, NYSE Amex
Equities Rule 98(c)(2)(A)(ii) provides that a DMM may make available
to a Floor broker associated with an approved person or member
organization any information that the DMM would be permitted to
provide under Exchange rules to an unaffiliated Floor broker.
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change would
contribute substantially to the fair and orderly operation of the
Exchange Trading Floor, and that the benefits of that contribution
would significantly outweigh any incremental benefit to the DMMs by
virtue of having access to disaggregated order information. DMM
assistance at the post through the performance of the Trading Floor
functions is an invaluable resource to minimize any disruption to the
market, particularly if the Exchange is experiencing a systems issue;
the Exchange systems that provide disaggregated order information play
a pivotal role in that assistance, for example by allowing DMMs to
enter or cancel orders on behalf of Floor brokers. Allowing DMMs to
have access to those Exchange systems to perform the Trading Floor
functions is more efficient than diverting Exchange resources to attend
to individual Floor broker issues, particularly when the DMMs are ready
and able to perform the same functions. In contrast, the proposed rule
change would provide DMMs with a disaggregated format of information
that they already have access to on an aggregated basis. Any potential
value to having order information on a disaggregated basis is mitigated
by the fact that DMMs only have information about orders at the
Exchange, which represent just a portion of the overall volume of
trading in Exchange-listed stocks across the market. The information is
likely to be stale upon receipt to the DMMs, thereby diminishing any
likelihood that the information would be useful to DMMs in connection
with their electronic or algorithmic trading. For example, the DMMs
would have to use a manual process to access the information, the DMMs'
access to disaggregated information at any given time would be limited
to a single stock, and the information would not be dynamically updated
to the DMM, in real time or
[[Page 71408]]
otherwise. In addition, as described above, all intra-day manual trades
entered by the DMM yield to public orders pursuant to NYSE Amex
Equities Rule 72 and DMMs are restricted from sharing order information
pursuant to NYSE Amex Equities Rule 98, both of which limit any
potential for the DMMs to use the disaggregated order information in
connection with their manual trading.
Conforming Amendments
To reflect the information that would be available to DMMs through
Exchange systems, the Exchange proposes amendments to NYSE Amex
Equities Rules 70(e), (f) and (i) and 70.25(a)(vii) to specify which
information is available to a DMM through Exchange systems. The
Exchange also proposes changes to NYSE Amex Equities Rule 70 to specify
what information about e-Quotes is available to the DMM.
In addition, the Exchange proposes to delete NYSE Amex Equities
Rule 104(a)(6), which currently provides that DMMs, trading assistants
and anyone acting on their behalf are prohibited from using the Display
Book[supreg] system to access information about Floor broker agency
interest excluded from the aggregated agency interest and Minimum
Display Reserve Order information other than for the purpose of
effecting transactions that are reasonably imminent where such Floor
broker agency and Minimum Display Reserve Order interest information is
necessary to effect such transaction.
Ability of DMMs To Provide Market Information on the Trading Floor
The Exchange proposes to modify the terms under which DMMs would be
permitted to provide market information to Floor brokers and visitors
on the Trading Floor. Specifically, NYSE Amex Equities Rule 104(j)(iii)
would permit a DMM to provide the market information to which he or she
has access under proposed NYSE Amex Equities Rule 104(j)(ii) to: (1) A
Floor broker in response to an inquiry in the normal course of
business; or (2) a visitor to the Trading Floor for the purpose of
demonstrating methods of trading. This aspect of the proposal builds on
and modifies current NYSE Amex Equities Rule 115, and the Exchange
therefore proposes to delete that Rule, which covers the same
subject.\19\
---------------------------------------------------------------------------
\19\ NYSE Amex Equities Rule 115 will be redesignated as
``Reserved.'' The Exchange further proposes to make conforming
amendments to NYSE Amex Equities Rules 13 and 104(a)(6).
---------------------------------------------------------------------------
Currently, NYSE Amex Equities Rule 115 provides that a DMM may
disclose market information for three purposes. First, a DMM may
disclose market information for the purpose of demonstrating the
methods of trading to visitors to the Trading Floor. This aspect of
current NYSE Amex Equities Rule 115 would be replicated in proposed
NYSE Amex Equities Rule 104(j)(iii)(B). Second, a DMM may disclose
market information to other market centers in order to facilitate the
operation of the Intermarket Trading System (``ITS''). This text is
obsolete as the ITS Plan has been eliminated and therefore would not be
included in amended NYSE Amex Equities Rule 104.\20\ Third, a DMM may,
while acting in a market making capacity, provide information about
buying or selling interest in the market, including (a) Aggregated
buying or selling interest contained in Floor broker agency interest
files other than interest the broker has chosen to exclude from the
aggregated buying and selling interest, (b) aggregated interest of
Minimum Display Reserve Orders and (c) the interest included in DMM
interest files, excluding Capital Commitment Schedule (``CCS'')
interest as described in NYSE Amex Equities Rule 1000(c), in response
to an inquiry from a member conducting a market probe \21\ in the
normal course of business.
---------------------------------------------------------------------------
\20\ See Securities Exchange Act Release No. 55397 (March 5,
2007), 72 FR 11066 (March 12, 2007) (Intermarket Trading System;
Notice of Filing and Immediate Effectiveness of the Twenty Fourth
Amendment to the ITS Plan Relating to the Elimination of the ITS
Plan).
\21\ Generally, a market probe refers to when a Floor broker is
seeking to ascertain the depth of the market in a security to
determine at what price point a security may trade. However, it is a
term of art whose meaning is not codified.
---------------------------------------------------------------------------
Proposed NYSE Amex Equities Rule 104(j)(iii) would permit DMMs to
provide Floor brokers not only with the same aggregated order
information that DMMs currently are permitted to provide under NYSE
Amex Equities Rule 115 but also with the disaggregated and post-trade
order information described above.\22\ Broadening the scope of
information that DMMs can provide Floor brokers will assist DMMs with
carrying out their historical function of bringing Floor brokers
together to facilitate trading. In addition, the Exchange notes that
NYSE Amex Equities Rule 115 allowed Exchange specialists to provide
disaggregated order information to Floor brokers prior to adoption of
the Hybrid Market.\23\ Moreover, as noted above, both Floor brokers and
off-Floor participants have the ability to enter partially or
completely ``dark'' orders that are not visible to the DMM, and DMMs
therefore would be unable to disseminate information about such
``dark'' orders or the dark portion of the orders in response to an
inquiry from a Floor broker. When providing information, the individual
DMM is responsible for fairly and impartially providing accurate and
timely information to all inquiring Floor brokers about buying and
selling interest in his or her assigned security.
---------------------------------------------------------------------------
\22\ Because DMMs on the Trading Floor do not have access to CCS
interest information, the proposed rule does not specify that DMMs
would not be disseminating such information.
\23\ See NYSE Regulation Information Memo 05-5 (stating that,
under NYSE Rule 115, specialists may disclose the identity of the
members or member organizations representing any orders entrusted to
the specialist). The NYSE amended Rule 115 in connection with the
Hybrid Market because at that time, there was no way for Floor
brokers to enter fully dark electronic interest. Now that NYSE and
Exchange systems can accept fully dark electronic interest from both
Floor brokers and off-Floor participants, the Hybrid Market change
to NYSE Rule 115 has been obviated.
---------------------------------------------------------------------------
Proposed NYSE Amex Equities Rule 104(j)(iii) also would permit a
DMM to provide market information to a Floor broker in response to a
specific request by the Floor broker to the DMM at the post, rather
than specifying that the information must be provided ``in response to
an inquiry from a member conducting a market probe in the normal course
of business,'' as currently provided in NYSE Amex Equities Rule 115.
The Exchange believes that the term ``market probe'' no longer
accurately reflects the manner in which DMMs and Floor brokers interact
on the Trading Floor. Rather, the Exchange believes that the Floor
broker's normal course of business, as an agent for customers, includes
both seeking market probes into the depth of the market as well as
seeking out willing contra-side buyers and sellers in a particular
security. In addition, the rule would specify that a Floor broker may
not submit an inquiry to the DMM by electronic means and that the DMM
may not use electronic means to transmit market information to a Floor
broker in response an inquiry. Under the proposed rule change, Floor
brokers would not have access to Exchange systems that provide
disaggregated order information, and they would only be able to access
such market information through a direct interaction with a DMM at the
post.
The Exchange believes that providing Floor brokers with access to
the disaggregated order information would serve a valuable function by
increasing the ability of Floor brokers to source liquidity and provide
price discovery for block transactions. In particular, the ability of
Floor brokers to receive the disaggregated order information should,
[[Page 71409]]
in turn, enhance their ability to facilitate transactions for their
customers by identifying market participants with trading interest that
could trade with the Floor brokers' customers. Floor brokers have
historically served this role on behalf of their customers, which
include institutional clients and block-trading desks, and they
continue to perform this agency function today. The Exchange notes that
Floor brokers continue to be subject to their existing obligations with
respect to Floor trading and access to information. In particular,
Floor brokers remain subject to the restrictions in Section 11(a) of
the Securities Exchange Act of 1934 (the ``Act'') and the rule
thereunder, which effectively prohibit Floor brokers from effecting
transactions for their own account, the account of an associated
person, or an account with respect to which the member, member
organization, or an associated person thereof exercises investment
discretion.\24\
---------------------------------------------------------------------------
\24\ See also NYSE Amex Equities Rule 90.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the requirements of Section 6(b) of the Act,\25\ in general, and
Section 6(b)(5) of the Act,\26\ in particular, in that it is designed
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to
and perfect the mechanism for a free and open market and a national
market system and, in general, to protect investors and the public
interest. In particular, the proposed rule change clarifies that DMMs
may perform certain defined Trading Floor functions, which were
previously performed by specialists, in furtherance of the efficient,
fair, and orderly operation of the Exchange. In addition, increasing
the amount of information, including disaggregated order information,
that a DMM is permitted to view and provide to Floor brokers would
further the ability of DMMs to carry out the defined Trading Floor
functions and, as a result, is designed to remove impediments to and
perfect the mechanism of a free and open market through the efficient
operation of the Exchange, in particular by facilitating the bringing
of buyers and sellers together. Although a vast majority of the
transactions executed on the Exchange are automated, Floor brokers
continue to play an important role for customers in those transactions
that require the expertise of a professional trading floor agent,
including engaging in price discovery and sourcing liquidity for block
transactions. While the disaggregated order information that would be
available to DMMs and Floor brokers under the proposed rule change is
important to them in carrying out their unique roles in a floor trading
environment, the Exchange believes this information would not be
material to market participants executing automated orders. In
addition, the means of access by DMMs and Floor brokers to the
disaggregated order information is largely manual. Accordingly, the
Exchange believes that access to disaggregated order information as set
forth in this proposed rule change provides no unfair advantage to DMMs
or Floor brokers. In addition, as noted above, DMMs would be
specifically prohibited from using the market information available
through Exchange systems for any purpose that would violate Exchange
rules or federal securities laws or regulations.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) As the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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 email to rule-comments@sec.gov. Please include
File Number SR-NYSEAmex-2011-86 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-2011-86. This
file number should be included on the subject line if email 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 NW.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. The text of the proposed rule change is available on
the Commission's Web site at https://www.sec.gov. 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-2011-86 and should be submitted on or before December 8,
2011.
[[Page 71410]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
---------------------------------------------------------------------------
\27\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-29678 Filed 11-16-11; 8:45 am]
BILLING CODE 8011-01-P
