Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Proposed Rule Change Amending Rule 76-Equities To Add Supplementary Material Relating to a Cross Function That Provides a Regulation NMS Rule 611-Compliant Tool for Floor Brokers, 44294-44298 [2012-18330]
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44294
Federal Register / Vol. 77, No. 145 / Friday, July 27, 2012 / Notices
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until such time as the NAV is available
to all market participants. The Exchange
states that it has a general policy
prohibiting the distribution of material,
non-public information by its
employees. The Exchange further states
that the Index Provider is not a brokerdealer and has implemented procedures
designed to prevent the use and
dissemination of material, non-public
information regarding the Index.21 The
Commission notes that the Exchange
would be able to obtain information
with respect to the equity securities and
VIX call options comprising the Index
and which will be held by the Fund
because such equity securities and VIX
call options will trade in markets that
are ISG members or are parties to
comprehensive surveillance sharing
agreements with the Exchange.
The Exchange represents that the
Shares are deemed to be equity
securities, thus rendering trading in the
Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. In support of this
proposal, the Exchange has made
representations, including:
(1) The continued listing standards
under NYSE Arca Equities Rules
5.2(j)(3) and 5.5(g)(2) applicable to Units
shall apply to the Shares.
(2) In addition, the Fund and the
Shares will comply with all other
requirements applicable to Units
including, but not limited to,
requirements relating to the
dissemination of key information such
as the value of the Index, IIV, and NAV,
rules governing the trading of equity
securities, trading hours, trading halts,
surveillance, information barriers, and
Information Bulletin to Equity Trading
21 The Commission also notes that an investment
adviser to an open-end fund is required to be
registered under the Investment Advisers Act of
1940 (‘‘Advisers Act’’). As a result, the Adviser and
its personnel are subject to the provisions of Rule
204A–1 under the Advisers Act relating to codes of
ethics. This Rule requires investment advisers to
adopt a code of ethics that reflects the fiduciary
nature of the relationship to clients as well as
compliance with other applicable securities laws.
Accordingly, procedures designed to prevent the
communication and misuse of non-public
information by an investment adviser must be
consistent with Rule 204A–1 under the Advisers
Act. In addition, Rule 206(4)–7 under the Advisers
Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such
investment adviser has (i) Adopted and
implemented written policies and procedures
reasonably designed to prevent violation, by the
investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted
thereunder; (ii) implemented, at a minimum, an
annual review regarding the adequacy of the
policies and procedures established pursuant to
subparagraph (i) above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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Permit (‘‘ETP’’) Holders (each as
described in more detail herein and in
the Notice and Registration Statement,
as applicable), as set forth in Exchange
rules applicable to Units and prior
Commission orders approving the
generic listing rules applicable to the
listing and trading of Units.
(3) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(4) The Exchange’s surveillance
procedures applicable to derivative
products, which include Units, are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and
applicable federal securities laws. All
Index components are traded on
exchanges that are members of ISG.
(5) Prior to the commencement of
trading, the Exchange will inform its
ETP Holders in an Information Bulletin
of the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Bulletin
will discuss the following: (a) The
procedures for purchases and
redemptions of Shares in Creation Unit
Aggregations (as defined in the Notice)
and that Shares are not individually
redeemable; (b) NYSE Arca Equities
Rule 9.2(a), which imposes a duty of
due diligence on its ETP Holders to
learn the essential facts relating to every
customer prior to trading the Shares; (c)
the risks involved in trading the Shares
during the Opening and Late Trading
Sessions when an updated IIV will not
be calculated or publicly disseminated;
(d) how information regarding the IIV is
disseminated; (e) the requirement that
ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (f)
trading and other information.
(6) For initial and/or continued
listing, the Fund will be in compliance
with Rule 10A–3 under the Act,22 as
provided by NYSE Arca Equities Rule
5.3.
(7) The Fund will normally invest at
least 90% of its net assets (plus the
amount of any borrowings for
investment purposes) in S&P 500
common stocks, which are listed and
traded on a national securities
exchange, and 0.0% to 1.0% of its net
assets in VIX call options, which are
traded on CBOE.
(8) VIX call options would represent,
at most, 1.0% of the total weight of the
Index, and the VIX options components
of the Index, if any, must remain listed
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22 See
17 CFR 240.10A–3.
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and traded on a national securities
exchange.
(9) A minimum of 100,000 Shares of
the Fund will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on all of
the Exchange’s representations,
including those set forth above and in
the Notice, and the Exchange’s
description of the Fund.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 23 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,24 that the
proposed rule change (SR–NYSEArca2012–50) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–18311 Filed 7–26–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67489; File No. SR–
NYSEMKT–2012–26]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing of Proposed
Rule Change Amending Rule 76—
Equities To Add Supplementary
Material Relating to a Cross Function
That Provides a Regulation NMS Rule
611-Compliant Tool for Floor Brokers
July 23, 2012.
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 July 13,
2012, NYSE MKT LLC (the ‘‘Exchange’’
or ‘‘NYSE MKT’’) 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.
23 15
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
25 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
24 15
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Federal Register / Vol. 77, No. 145 / Friday, July 27, 2012 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 76—Equities to add supplementary
material relating to a cross function that
provides a Regulation NMS Rule
611-compliant tool for Floor Brokers.
The text of the proposed rule change is
available on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
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.
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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
Rule 76—Equities to describe an
enhancement to the current processes
used by Floor Brokers to manually cross
orders in compliance with Regulation
NMS Rule 611 (‘‘Rule 611’’).
Specifically, the Exchange proposes to
allow Floor Brokers to use new
functionality for the wireless hand held
devices (‘‘HHD’’) that will assist them in
meeting their Rule 611 compliance
requirements by providing for a ‘‘lookback’’ period in effecting crosses under
Exchange rules. The Exchange believes
that use of the HHD by Floor Brokers to
assist in the execution of manual cross
trades, combined with a brief and
reasonable amount of time to
accommodate the manual manner by
which Floor Brokers must comply with
Exchange crossing rules, will enhance
the efficiency of such crosses and
provide a better audit trail for purposes
of Rule 611. The new functionality
(‘‘Cross Function’’) and the proposed
procedures are described below.
Background
Rule 76—Equities governs the
execution of ‘‘cross’’ or ‘‘crossing’’
orders by Floor Brokers. Rule 76—
Equities applies only to manual
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transactions executed at the point of
sale on the trading Floor and provides
that when a member has an order to buy
and an order to sell the same security
that can be crossed at the same price,
the member is required to announce to
the trading crowd the proposed cross by
offering the security at a price that is
higher than his or her bid by a
minimum variation permitted in the
security before crossing the orders. Any
other member, including the Designated
Market Maker (‘‘DMM’’), can break up
the announced bid and offer by trading
with either side of the proposed cross
transaction.3 If no one in the trading
crowd breaks up the proposed cross, the
DMM on behalf of the Floor Broker
enters the cross transaction into the
Exchange’s Display Book system as a
completed transaction. The completed
transaction is printed to the
Consolidated Tape at that price.
Currently, after announcing a
proposed cross transaction, the Floor
Broker and DMM manually monitor the
protected best bid or offer to ensure that
the proposed cross can be executed in
accordance with the customer’s
instructions and in compliance with
Rule 611. In today’s fast-moving,
electronic markets, where prices can
change in millisecond timeframes, this
manual monitoring process may not be
the optimal manner by which to
facilitate and evidence such
compliance.
The Commission and its staff have
recognized the difficulty that brokerdealers face when manually handling
orders in light of Rule 611. Specifically,
the SEC staff has issued guidance
pertaining to the manual execution of
orders under staff FAQ 3.23 of Rule
611.4 Under the FAQ, a broker-dealer
that acts as agent in arranging block
transactions between two or more
parties at prices that are individually
negotiated,5 and at a price that is at or
3 An agency ‘‘cross’’ of 10,000 shares or more at
or between the Exchange best bid or offer has
priority and can only be broken up to provide price
improvement that is better than the cross price as
to all or part of such bid or offer. A buy and sell
order to be crossed pursuant to Rule 72(d)—Equities
is subject to Rule 76—Equities, including the
requirement that such a proposed cross be
announced to the crowd. See Rule 72(d)—Equities.
In addition, cross transactions to be executed at a
clean-up price outside the current quotation on the
Exchange are subject to Rule 127. See Rule 127—
Equities.
4 See ‘‘Responses to Frequently Asked Questions
Concerning Rule 611 and Rule 610 of Regulation
NMS,’’ FAQ 3.23 ‘‘Agency Block Transactions with
Non-Trade-Through Prices that are Individually
Negotiated’’ (‘‘FAQ 3.23’’). FAQ 3.23 is available at:
https://www.sec.gov/divisions/marketreg/
nmsfaq610-11.htm.
5 The negotiations can occur either through
communications with personnel of the brokerdealer or through direct communications between
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44295
within the protected quotations must
capture the negotiated price in its
automated system within a reasonable
time period.6 Due to the manual nature
of these transactions, the individually
negotiated price may not be at or within
the protected bid and offer at the time
the transaction terms ultimately are
captured in the automated system. FAQ
3.23 addresses this issue by permitting
the broker-dealer to utilize a 20-second
‘‘look-back’’ period for purposes of
demonstrating compliance with Rule
611.
As discussed below, the Exchange is
proposing a similar means for assisting
Floor Brokers with compliance with
Rule 611 that is consistent with existing
Exchange crossing rules. Exchange Floor
Brokers cross large orders pursuant to
Rule 76—Equities. In many cases, these
orders are sent to a Floor Broker by
customers seeking a primary market
print, as well as orders from customers
who do not wish to have their orders
handled by broker-dealers that also
trade as principal. While the crossing of
orders by Floor Brokers using the
proposed Cross Function would differ
in degree from the crossing guidance in
FAQ 3.23,4 as discussed below, the
fundamental issue of facilitating
compliance with Rule 611 when
handling large manual trades is the
same. Moreover, the proposed Cross
Function is narrowl y tailored to
address the manual handling of cross
orders by Floor Brokers, who face
unique issues by virtue of their status as
Floor-based participants.
Floor Broker activities are subject to
various regulatory restrictions that are
not imposed upon broker-dealers
executing orders off the Floor of the
Exchange. Floor Broker activities on the
Floor of the Exchange are subject to
Section 11(a) of the Exchange Act and
the rules thereunder.7 As such, Floor
Brokers are limited in their ability to
trade for their own account or for the
account of an associated person or an
account over which they exercise
discretion. In addition, pursuant to Rule
112—Equities, Floor Brokers are also
the parties of the transaction, and the negotiations
may occur through a telephone conversation or
through automated messages (e.g., email).
6 Under the FAQ, the transaction must be
individually negotiated, and at least one of the
parties individually negotiating the price of the
transaction must be a ‘‘customer,’’ as defined in
Rule 600(b)(16) of Regulation NMS. Similarly,
crosses under the FAQ must be in block size, as
defined in Rule 600(b)(9).
7 15 U.S.C. 78k(a). The Exchange notes that,
although Section 11(a) provides for certain limited
exceptions for Floor Broker activities (e.g.,
transactions to offset a transaction made in error),
it generally imposes limitations on Floor Brokers
that are not applicable to broker-dealers engaged in
trading off the Floor of the Exchange.
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prohibited from initiating orders on the
Trading Floor. Consequently, Floor
Brokers act only as agents on the Floor,
even in circumstances where they are
representing principal order flow from
an associated person or upstairs desk.
Moreover, because Floor Brokers may
not access away markets directly while
at the point of sale,8 Floor Brokers
cannot rely on the exception set forth in
Rule 611(b)(6), which permits market
participants to send intermarket sweep
orders while simultaneously effecting a
crossing transaction that may trade
through protected quotations.
Furthermore, broker-dealers executing
cross transactions off the floor of the
Exchange are not subject to Rule 76—
Equities requirements. Rule 76—
Equities requires that Floor-based
crossing transactions be exposed to the
DMM and the crowd prior to being
executed, which provides other
Exchange members and public
customers the ability to participate in
such transactions. Because of this
requirement, Floor Broker proposed
cross transactions are required to be
exposed publicly in a manner not
required of off-Floor participants.
As explained in greater detail below
and given the regulatory restrictions
applicable to the operation of Floor
Brokers, the Exchange believes the
proposal is consistent with the purposes
underlying FAQ 3.23, notwithstanding
certain factual differences in the
scenarios. As previously noted, Floor
Brokers currently monitor protected
bids and offers manually to ensure that
the proposed cross can be executed in
accordance with Rule 611, which is not
optimal in today’s electronic markets.
The relief provided in FAQ 3.23 is
designed to facilitate compliance with
Rule 611 for manual transactions.
Likewise, the Exchange is proposing to
amend Rule 76—Equities to enable
Floor Brokers to effectively and
efficiently cross customer orders in
compliance with Exchange Rules and
Regulation NMS.
Proposed Amendment to Rule 76—
Equities
To assist Floor Brokers in monitoring
the price of protected quotations and
ensuring compliance with Rule 611, the
Exchange proposes the Cross Function
as set forth in the proposed
supplementary material to Rule 76—
Equities. As proposed, Floor Brokers
would be able to submit not held orders
to be crossed (purchase and sale of the
same security) into the HHD at a limit
8 See Rules 76—Equities and 70.40—Equities.
Floor Brokers must be at the point of sale to execute
crossing transactions pursuant to Rule 76—Equities.
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price consistent with customer
instructions and as determined by the
Floor Broker. The Floor Broker,
however, may not use the Cross
Function with regard to a cross
involving a principal order to buy and
a principal order to sell submitted by
the same broker-dealer. After the orders
are entered into the HHD, a quote
minder function within Exchange
systems will monitor protected
quotations to determine when the limit
prices assigned to the buy and sell
orders are such that the orders may be
executed consistent with Rule 611.
When the protected quotation permits a
Rule 611-compliant print (i.e., the
desired crossing price is at or between
the protected bid and offer), the quote
minder will:
(i) Deliver an Alert message to the
Floor Broker’s HHD indicating that the
orders may be crossed;
(ii) Capture within Exchange systems
a time-stamped quote that includes the
time the Alert is sent to the HHD and
the protected bid and offer at that time;
(iii) Start a 20-second timer (as
discussed below), and
(iv) Enable a ‘‘print’’ key function in
the HHD allowing the Floor Broker to
execute the orders and send the trade
report through Exchange systems to the
Tape.
As proposed, the Cross Function
includes a 20-second timer that
commences from the moment the cross
trade at its proposed price could be
executed at or between the protected bid
and offer. As detailed below, the Floor
Broker will use this brief period to
comply with the Rule 76—Equities
requirement to announce the proposed
cross transaction to the crowd. If
Exchange systems do not receive the
‘‘print’’ message from the HHD within
the allotted time period, the ability to
execute the orders and print to the tape
will expire and the cross instructions
will be canceled.
As required by Rule 76—Equities,
when using the proposed Cross
Function, the Floor Broker must first
‘‘clear’’ the crowd before executing a
cross transaction. Therefore, the Floor
Broker is required to be physically
present at the post/panel of the DMM
for the subject security and must
verbally announce the cross trade. If
there is crowd and/or DMM interest in
response to the Floor Broker’s verbal
announcement of the cross trade, the
Floor Broker must trade with such
interest on behalf of the applicable
customer order(s), as required by
Exchange Rules. Under the proposed
functionality, if the original terms of the
proposed cross transaction cannot be
met for any reason, for example, if the
PO 00000
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crowd trades with a portion of either the
proposed bid or offer and the Floor
Broker cannot otherwise complete the
proposed cross transaction in the size or
price that was entered into the Crossing
Function, the originally-entered
proposed cross transaction will be
cancelled.9
If the crowd or DMM does not break
up the proposed cross trade, the Floor
Broker may execute the trade by
selecting the ‘‘print’’ key in the HHD
prior to the expiration of the 20-second
timer, which also will transmit a
message to Exchange systems to print
the transaction to the Tape. Thus, the
20-second timer permits a reasonable
time for Floor Brokers to comply with
Exchange crossing rules and establishes
a brief ‘‘look-back’’ period that permits
the crossing of the orders at the
designated limit price even if the market
for the security subsequently moves
while the Floor Broker is meeting its
obligation under Rule 76—Equities. The
Exchange believes that providing the 20second timer is consistent with FAQ
3.23 because, similar to how off-Floor
transactions require sufficient time for
negotiation and entry into execution
systems, Floor Broker proposed
transactions need a similar time period
to be exposed to the public and then,
once executed, to be transmitted
through broker systems to the Display
Book and then to the Tape.10 To confirm
compliance with Rule 76—Equities, the
DMM will be required to enter the Floor
Broker’s badge number into Exchange
systems.
A Floor Broker may cancel the orders
associated with the proposed Cross
Function at any time up to the point
that the trade is executed (that is, at the
time the ‘‘print’’ key is activated).11
In addition, consistent with FAQ 3.23,
the proposed Cross Function would be
9 Currently, due to limitations in the functionality
of the system, the Exchange cancels a proposed
cross transaction when the originally-entered size of
the cross changes. However, the Exchange is
exploring the possibility of making system changes
to allow a proposed cross transaction to proceed if
the only change in the proposed cross is a change
in the size.
10 As with off-Floor crossing transactions that are
executed consistent with FAQ 3.23, the time that
the proposed Floor Broker cross transaction
‘‘prints’’ via the HHD key may be at a time when
either the protected bid or offer or Exchange best
bid or offer has moved. Accordingly, by using the
Cross Function, Floor Brokers will ensure
compliance with not only Rule 611, but also NYSE
Rule 127—Equities in that the proposed cross
transaction will not trade through the Exchange’s
best bid or offer at the time of Rule 611 validation.
11 The Exchange notes that Floor Brokers are
required to have policies and procedures designed
to ensure compliance with, among other things,
Rule 76—Equities. Therefore, Floor Brokers will be
required to update their policies and procedures to
reflect any amendments to Rule 76—Equities.
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Federal Register / Vol. 77, No. 145 / Friday, July 27, 2012 / Notices
available only for proposed cross
transactions that are for at least 10,000
shares or a quantity of stock having a
market value of $200,000 or more,
which is the definition of a block
transaction under Regulation NMS Rule
600(b)(9).
Moreover, the Exchange proposes that
the proposed cross transaction may not
be for orders for the account of the
member or member organization, an
account of an associated person, or an
account with respect to which the
member, member organization or
associated person thereof exercises
investment discretion. The Exchange
believes that requiring orders to be on
behalf of unaffiliated entities provides
the Floor broker analog to the FAQ 3.23
requirement that at least one side of the
transaction be for a ‘‘customer.’’ As
recognized in Rule 72(d)—Equities,
which permits a Floor broker to assert
priority on behalf of block-sized order
flow from an unaffiliated member
organization, Floor broker customers are
not limited to non-broker dealers. The
Exchange believes that the proposed
limitation to use the proposed Cross
Function on behalf of unaffiliated
broker dealers meets the spirit of FAQ
3.23 by assuring that the Cross Function
will not be used for affiliated principal
order flow.
Accordingly, as proposed, a Floor
broker may use the proposed Cross
Function for any order flow he or she
may receive from an unaffiliated
member organization, even if one side of
the proposed cross transaction is for the
account of the unaffiliated member
organization. Likewise, a Floor broker
could use the proposed Cross Function
for proposed crossed transactions that
represent principal orders of two
different unaffiliated broker-dealer
customers.
The Exchange believes that Floor
Brokers provide a useful service to the
market and their customers in their
ability to source liquidity and provide
price discovery for transactions.
Therefore, the Cross Function is
designed to assist Floor Brokers in
providing such services in a more
efficient and effective manner in light of
the requirements of Rule 611.
Specifically, the Cross Function, with
its ‘‘look-back’’ feature, would provide a
more effective mechanism by which a
Floor Broker can manually execute a
cross in accordance with the customer’s
instructions and in compliance with
Rule 611, particularly when there is
significant quote traffic with flickering
prices. Moreover, the proposed changes
to Rule 76—Equities are narrowly
drafted to address the practical issues
and concerns related to the interaction
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between a manual process and
electronic quotes as well as the unique
limitations applicable only to Floor
Brokers. It would not otherwise change
the current operation of Rule 76—
Equities; in particular, the requirement
to expose crosses to the crowd for
possible price improvement prior to
finalizing the cross would remain
intact.12
The Cross Function would not be
available with regard to crosses
involving buy and sell principal orders
represented by the same broker-dealer,
and all crosses, including crosses
involving principal and agency orders,
will be subject to being broken up upon
exposure to the crowd and the DMM.
The Exchange recognizes that a
proposed Floor broker crossed
transaction that represents principal
orders of two separate broker-dealer
customers differs from the scenario in
FAQ 3.23. However, given the unique
limitations on Floor Broker trading,
including that Floor Brokers cannot
initiate orders on the Floor and in such
situations, are acting as agents for their
broker-dealer customers, the Exchange
believes that the intent is consistent
with FAQ 3.23. In addition, the Cross
Function will timely capture the
transaction terms in an automated
system, thereby providing a better audit
trail for manually crossed orders. Such
an audit trail will facilitate the review
of the Floor Brokers’ manual crosses to
ensure their compliance with Rule 611.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the requirements of Section 6(b) of the
Act,13 in general, and Section 6(b)(5) of
the Act,14 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 Exchange believes
that the proposed Cross Function and
proposed amendment to Rule 76—
Equities remove impediments to and
perfect the mechanism for a free and
Exchange notes that Rule 76—Equities
currently governs the manual execution of cross
orders by Floor Brokers without consideration of
the order size. The Exchange is not proposing to
amend Rule 76—Equities to limit Floor Brokers’
ability to manually execute cross orders that are
block size.
13 15 U.S.C. 78f(b).
14 15 U.S.C. 78f(b)(5).
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12 The
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44297
open market because the Cross Function
will assist Floor brokers’ ability to meet
both their Rule 611 obligations and
existing Rule 76—Equities requirements
with respect to crossed orders.
Additionally, the Exchange believes the
proposal removes impediments to and
perfects the mechanism for a free and
open market because Floor Brokers will
have automated tools to enable their
compliance with Rule 611 of Regulation
NMS and efficiently execute the cross
transactions. Furthermore, the Exchange
believes the proposal will generate a
better audit trail for purposes of Rule
611 of the crossed transactions.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
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
such 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 rulecomments@sec.gov. Please include File
Number SR–NYSEMKT–2012–26 on the
subject line.
E:\FR\FM\27JYN1.SGM
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44298
Federal Register / Vol. 77, No. 145 / Friday, July 27, 2012 / Notices
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–NYSEMKT–2012–26. 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 the filing also
will be available for inspection and
copying at the principal office of the
Exchange. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEMKT–2012–26 and should be
submitted on or before August 17, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–18330 Filed 7–26–12; 8:45 am]
erowe on DSK2VPTVN1PROD with NOTICES
BILLING CODE 8011–01–P
15 17
15:32 Jul 26, 2012
[Release No. 34–67484; File Number SR–
FINRA–2012–036]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Regarding the
Implementation Date for Amendments
to NASD Rules 1012 and 1017 in SR–
FINRA–2012–018
July 23, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’)
and Rule 19b–4 thereunder, notice is
hereby given that on July 20, 2012,
Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) (f/k/a
National Association of Securities
Dealers, Inc. (‘‘NASD’’)) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II
and III below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
constituting a ‘‘non-controversial’’ rule
change under paragraph (f)(6) of Rule
19b–4 under the Act, which renders the
proposal effective upon receipt of this
filing by the Commission. 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
FINRA is proposing a rule change to
establish August 27, 2012 as the new
implementation date for amendments to
NASD Rules 1012 and 1017 in SR–
FINRA–2012–018 approved by the
Commission on May 31, 2012.
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA 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 these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
CFR 200.30–3(a)(12).
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COMMISSION
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, Proposed Rule
Change
1. Purpose
On May 31, 2012, the SEC approved
amendments to NASD Rules 1012
(General Provisions) and 1017
(Application for Approval of Change in
Ownership, Control, or Business
Operations) to adopt a new standardized
electronic form, Form CMA, to be used
by all continuing membership
applicants as part of their continuing
membership applications. On July 5,
2012, FINRA published Regulatory
Notice 12–33 announcing that,
beginning on July 23, 2012, continuing
membership applicants would need to
submit the new electronic Form CMA as
part of their continuing membership
applications. FINRA is filing the
proposed rule change to establish
August 27, 2012 as the new
implementation date for the
amendments to NASD Rules 1012 and
1017 requiring continuing membership
applicants to use the new Form CMA
and resolve a discrepancy between the
proposed implementation date set forth
in the Form 19b–4 for SR–FINRA–2012–
018 and the Notice of Filing of SR–
FINRA–2012–018 in the Federal
Register. As of July 23, 2012, continuing
membership applicants will have the
option to use the Form CMA to submit
their continuing membership
applications, but use of the Form CMA
will not become mandatory until August
27, 2012.
FINRA has filed the proposed rule
change for immediate effectiveness.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act, which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. FINRA believes that
establishing an implementation date of
August 27, 2012 will provide firms with
additional time to become familiar with
the Form CMA.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
E:\FR\FM\27JYN1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 145 (Friday, July 27, 2012)]
[Notices]
[Pages 44294-44298]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-18330]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67489; File No. SR-NYSEMKT-2012-26]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of
Proposed Rule Change Amending Rule 76--Equities To Add Supplementary
Material Relating to a Cross Function That Provides a Regulation NMS
Rule 611-Compliant Tool for Floor Brokers
July 23, 2012.
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 July 13, 2012, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'') 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
[[Page 44295]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 76--Equities to add
supplementary material relating to a cross function that provides a
Regulation NMS Rule 611-compliant tool for Floor Brokers. The text of
the proposed rule change is available on the Exchange's Web site at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 76--Equities to describe an
enhancement to the current processes used by Floor Brokers to manually
cross orders in compliance with Regulation NMS Rule 611 (``Rule 611'').
Specifically, the Exchange proposes to allow Floor Brokers to use new
functionality for the wireless hand held devices (``HHD'') that will
assist them in meeting their Rule 611 compliance requirements by
providing for a ``look-back'' period in effecting crosses under
Exchange rules. The Exchange believes that use of the HHD by Floor
Brokers to assist in the execution of manual cross trades, combined
with a brief and reasonable amount of time to accommodate the manual
manner by which Floor Brokers must comply with Exchange crossing rules,
will enhance the efficiency of such crosses and provide a better audit
trail for purposes of Rule 611. The new functionality (``Cross
Function'') and the proposed procedures are described below.
Background
Rule 76--Equities governs the execution of ``cross'' or
``crossing'' orders by Floor Brokers. Rule 76--Equities applies only to
manual transactions executed at the point of sale on the trading Floor
and provides that when a member has an order to buy and an order to
sell the same security that can be crossed at the same price, the
member is required to announce to the trading crowd the proposed cross
by offering the security at a price that is higher than his or her bid
by a minimum variation permitted in the security before crossing the
orders. Any other member, including the Designated Market Maker
(``DMM''), can break up the announced bid and offer by trading with
either side of the proposed cross transaction.\3\ If no one in the
trading crowd breaks up the proposed cross, the DMM on behalf of the
Floor Broker enters the cross transaction into the Exchange's Display
Book system as a completed transaction. The completed transaction is
printed to the Consolidated Tape at that price.
---------------------------------------------------------------------------
\3\ An agency ``cross'' of 10,000 shares or more at or between
the Exchange best bid or offer has priority and can only be broken
up to provide price improvement that is better than the cross price
as to all or part of such bid or offer. A buy and sell order to be
crossed pursuant to Rule 72(d)--Equities is subject to Rule 76--
Equities, including the requirement that such a proposed cross be
announced to the crowd. See Rule 72(d)--Equities. In addition, cross
transactions to be executed at a clean-up price outside the current
quotation on the Exchange are subject to Rule 127. See Rule 127--
Equities.
---------------------------------------------------------------------------
Currently, after announcing a proposed cross transaction, the Floor
Broker and DMM manually monitor the protected best bid or offer to
ensure that the proposed cross can be executed in accordance with the
customer's instructions and in compliance with Rule 611. In today's
fast-moving, electronic markets, where prices can change in millisecond
timeframes, this manual monitoring process may not be the optimal
manner by which to facilitate and evidence such compliance.
The Commission and its staff have recognized the difficulty that
broker-dealers face when manually handling orders in light of Rule 611.
Specifically, the SEC staff has issued guidance pertaining to the
manual execution of orders under staff FAQ 3.23 of Rule 611.\4\ Under
the FAQ, a broker-dealer that acts as agent in arranging block
transactions between two or more parties at prices that are
individually negotiated,\5\ and at a price that is at or within the
protected quotations must capture the negotiated price in its automated
system within a reasonable time period.\6\ Due to the manual nature of
these transactions, the individually negotiated price may not be at or
within the protected bid and offer at the time the transaction terms
ultimately are captured in the automated system. FAQ 3.23 addresses
this issue by permitting the broker-dealer to utilize a 20-second
``look-back'' period for purposes of demonstrating compliance with Rule
611.
---------------------------------------------------------------------------
\4\ See ``Responses to Frequently Asked Questions Concerning
Rule 611 and Rule 610 of Regulation NMS,'' FAQ 3.23 ``Agency Block
Transactions with Non-Trade-Through Prices that are Individually
Negotiated'' (``FAQ 3.23''). FAQ 3.23 is available at: https://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
\5\ The negotiations can occur either through communications
with personnel of the broker-dealer or through direct communications
between the parties of the transaction, and the negotiations may
occur through a telephone conversation or through automated messages
(e.g., email).
\6\ Under the FAQ, the transaction must be individually
negotiated, and at least one of the parties individually negotiating
the price of the transaction must be a ``customer,'' as defined in
Rule 600(b)(16) of Regulation NMS. Similarly, crosses under the FAQ
must be in block size, as defined in Rule 600(b)(9).
---------------------------------------------------------------------------
As discussed below, the Exchange is proposing a similar means for
assisting Floor Brokers with compliance with Rule 611 that is
consistent with existing Exchange crossing rules. Exchange Floor
Brokers cross large orders pursuant to Rule 76--Equities. In many
cases, these orders are sent to a Floor Broker by customers seeking a
primary market print, as well as orders from customers who do not wish
to have their orders handled by broker-dealers that also trade as
principal. While the crossing of orders by Floor Brokers using the
proposed Cross Function would differ in degree from the crossing
guidance in FAQ 3.23,\4\ as discussed below, the fundamental issue of
facilitating compliance with Rule 611 when handling large manual trades
is the same. Moreover, the proposed Cross Function is narrowl y
tailored to address the manual handling of cross orders by Floor
Brokers, who face unique issues by virtue of their status as Floor-
based participants.
Floor Broker activities are subject to various regulatory
restrictions that are not imposed upon broker-dealers executing orders
off the Floor of the Exchange. Floor Broker activities on the Floor of
the Exchange are subject to Section 11(a) of the Exchange Act and the
rules thereunder.\7\ As such, Floor Brokers are limited in their
ability to trade for their own account or for the account of an
associated person or an account over which they exercise discretion. In
addition, pursuant to Rule 112--Equities, Floor Brokers are also
[[Page 44296]]
prohibited from initiating orders on the Trading Floor. Consequently,
Floor Brokers act only as agents on the Floor, even in circumstances
where they are representing principal order flow from an associated
person or upstairs desk. Moreover, because Floor Brokers may not access
away markets directly while at the point of sale,\8\ Floor Brokers
cannot rely on the exception set forth in Rule 611(b)(6), which permits
market participants to send intermarket sweep orders while
simultaneously effecting a crossing transaction that may trade through
protected quotations.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78k(a). The Exchange notes that, although Section
11(a) provides for certain limited exceptions for Floor Broker
activities (e.g., transactions to offset a transaction made in
error), it generally imposes limitations on Floor Brokers that are
not applicable to broker-dealers engaged in trading off the Floor of
the Exchange.
\8\ See Rules 76--Equities and 70.40--Equities. Floor Brokers
must be at the point of sale to execute crossing transactions
pursuant to Rule 76--Equities.
---------------------------------------------------------------------------
Furthermore, broker-dealers executing cross transactions off the
floor of the Exchange are not subject to Rule 76--Equities
requirements. Rule 76--Equities requires that Floor-based crossing
transactions be exposed to the DMM and the crowd prior to being
executed, which provides other Exchange members and public customers
the ability to participate in such transactions. Because of this
requirement, Floor Broker proposed cross transactions are required to
be exposed publicly in a manner not required of off-Floor participants.
As explained in greater detail below and given the regulatory
restrictions applicable to the operation of Floor Brokers, the Exchange
believes the proposal is consistent with the purposes underlying FAQ
3.23, notwithstanding certain factual differences in the scenarios. As
previously noted, Floor Brokers currently monitor protected bids and
offers manually to ensure that the proposed cross can be executed in
accordance with Rule 611, which is not optimal in today's electronic
markets. The relief provided in FAQ 3.23 is designed to facilitate
compliance with Rule 611 for manual transactions. Likewise, the
Exchange is proposing to amend Rule 76--Equities to enable Floor
Brokers to effectively and efficiently cross customer orders in
compliance with Exchange Rules and Regulation NMS.
Proposed Amendment to Rule 76--Equities
To assist Floor Brokers in monitoring the price of protected
quotations and ensuring compliance with Rule 611, the Exchange proposes
the Cross Function as set forth in the proposed supplementary material
to Rule 76--Equities. As proposed, Floor Brokers would be able to
submit not held orders to be crossed (purchase and sale of the same
security) into the HHD at a limit price consistent with customer
instructions and as determined by the Floor Broker. The Floor Broker,
however, may not use the Cross Function with regard to a cross
involving a principal order to buy and a principal order to sell
submitted by the same broker-dealer. After the orders are entered into
the HHD, a quote minder function within Exchange systems will monitor
protected quotations to determine when the limit prices assigned to the
buy and sell orders are such that the orders may be executed consistent
with Rule 611. When the protected quotation permits a Rule 611-
compliant print (i.e., the desired crossing price is at or between the
protected bid and offer), the quote minder will:
(i) Deliver an Alert message to the Floor Broker's HHD indicating
that the orders may be crossed;
(ii) Capture within Exchange systems a time-stamped quote that
includes the time the Alert is sent to the HHD and the protected bid
and offer at that time;
(iii) Start a 20-second timer (as discussed below), and
(iv) Enable a ``print'' key function in the HHD allowing the Floor
Broker to execute the orders and send the trade report through Exchange
systems to the Tape.
As proposed, the Cross Function includes a 20-second timer that
commences from the moment the cross trade at its proposed price could
be executed at or between the protected bid and offer. As detailed
below, the Floor Broker will use this brief period to comply with the
Rule 76--Equities requirement to announce the proposed cross
transaction to the crowd. If Exchange systems do not receive the
``print'' message from the HHD within the allotted time period, the
ability to execute the orders and print to the tape will expire and the
cross instructions will be canceled.
As required by Rule 76--Equities, when using the proposed Cross
Function, the Floor Broker must first ``clear'' the crowd before
executing a cross transaction. Therefore, the Floor Broker is required
to be physically present at the post/panel of the DMM for the subject
security and must verbally announce the cross trade. If there is crowd
and/or DMM interest in response to the Floor Broker's verbal
announcement of the cross trade, the Floor Broker must trade with such
interest on behalf of the applicable customer order(s), as required by
Exchange Rules. Under the proposed functionality, if the original terms
of the proposed cross transaction cannot be met for any reason, for
example, if the crowd trades with a portion of either the proposed bid
or offer and the Floor Broker cannot otherwise complete the proposed
cross transaction in the size or price that was entered into the
Crossing Function, the originally-entered proposed cross transaction
will be cancelled.\9\
---------------------------------------------------------------------------
\9\ Currently, due to limitations in the functionality of the
system, the Exchange cancels a proposed cross transaction when the
originally-entered size of the cross changes. However, the Exchange
is exploring the possibility of making system changes to allow a
proposed cross transaction to proceed if the only change in the
proposed cross is a change in the size.
---------------------------------------------------------------------------
If the crowd or DMM does not break up the proposed cross trade, the
Floor Broker may execute the trade by selecting the ``print'' key in
the HHD prior to the expiration of the 20-second timer, which also will
transmit a message to Exchange systems to print the transaction to the
Tape. Thus, the 20-second timer permits a reasonable time for Floor
Brokers to comply with Exchange crossing rules and establishes a brief
``look-back'' period that permits the crossing of the orders at the
designated limit price even if the market for the security subsequently
moves while the Floor Broker is meeting its obligation under Rule 76--
Equities. The Exchange believes that providing the 20-second timer is
consistent with FAQ 3.23 because, similar to how off-Floor transactions
require sufficient time for negotiation and entry into execution
systems, Floor Broker proposed transactions need a similar time period
to be exposed to the public and then, once executed, to be transmitted
through broker systems to the Display Book and then to the Tape.\10\ To
confirm compliance with Rule 76--Equities, the DMM will be required to
enter the Floor Broker's badge number into Exchange systems.
---------------------------------------------------------------------------
\10\ As with off-Floor crossing transactions that are executed
consistent with FAQ 3.23, the time that the proposed Floor Broker
cross transaction ``prints'' via the HHD key may be at a time when
either the protected bid or offer or Exchange best bid or offer has
moved. Accordingly, by using the Cross Function, Floor Brokers will
ensure compliance with not only Rule 611, but also NYSE Rule 127--
Equities in that the proposed cross transaction will not trade
through the Exchange's best bid or offer at the time of Rule 611
validation.
---------------------------------------------------------------------------
A Floor Broker may cancel the orders associated with the proposed
Cross Function at any time up to the point that the trade is executed
(that is, at the time the ``print'' key is activated).\11\
---------------------------------------------------------------------------
\11\ The Exchange notes that Floor Brokers are required to have
policies and procedures designed to ensure compliance with, among
other things, Rule 76--Equities. Therefore, Floor Brokers will be
required to update their policies and procedures to reflect any
amendments to Rule 76--Equities.
---------------------------------------------------------------------------
In addition, consistent with FAQ 3.23, the proposed Cross Function
would be
[[Page 44297]]
available only for proposed cross transactions that are for at least
10,000 shares or a quantity of stock having a market value of $200,000
or more, which is the definition of a block transaction under
Regulation NMS Rule 600(b)(9).
Moreover, the Exchange proposes that the proposed cross transaction
may not be for orders for the account of the member or member
organization, an account of an associated person, or an account with
respect to which the member, member organization or associated person
thereof exercises investment discretion. The Exchange believes that
requiring orders to be on behalf of unaffiliated entities provides the
Floor broker analog to the FAQ 3.23 requirement that at least one side
of the transaction be for a ``customer.'' As recognized in Rule 72(d)--
Equities, which permits a Floor broker to assert priority on behalf of
block-sized order flow from an unaffiliated member organization, Floor
broker customers are not limited to non-broker dealers. The Exchange
believes that the proposed limitation to use the proposed Cross
Function on behalf of unaffiliated broker dealers meets the spirit of
FAQ 3.23 by assuring that the Cross Function will not be used for
affiliated principal order flow.
Accordingly, as proposed, a Floor broker may use the proposed Cross
Function for any order flow he or she may receive from an unaffiliated
member organization, even if one side of the proposed cross transaction
is for the account of the unaffiliated member organization. Likewise, a
Floor broker could use the proposed Cross Function for proposed crossed
transactions that represent principal orders of two different
unaffiliated broker-dealer customers.
The Exchange believes that Floor Brokers provide a useful service
to the market and their customers in their ability to source liquidity
and provide price discovery for transactions. Therefore, the Cross
Function is designed to assist Floor Brokers in providing such services
in a more efficient and effective manner in light of the requirements
of Rule 611. Specifically, the Cross Function, with its ``look-back''
feature, would provide a more effective mechanism by which a Floor
Broker can manually execute a cross in accordance with the customer's
instructions and in compliance with Rule 611, particularly when there
is significant quote traffic with flickering prices. Moreover, the
proposed changes to Rule 76--Equities are narrowly drafted to address
the practical issues and concerns related to the interaction between a
manual process and electronic quotes as well as the unique limitations
applicable only to Floor Brokers. It would not otherwise change the
current operation of Rule 76--Equities; in particular, the requirement
to expose crosses to the crowd for possible price improvement prior to
finalizing the cross would remain intact.\12\
---------------------------------------------------------------------------
\12\ The Exchange notes that Rule 76--Equities currently governs
the manual execution of cross orders by Floor Brokers without
consideration of the order size. The Exchange is not proposing to
amend Rule 76--Equities to limit Floor Brokers' ability to manually
execute cross orders that are block size.
---------------------------------------------------------------------------
The Cross Function would not be available with regard to crosses
involving buy and sell principal orders represented by the same broker-
dealer, and all crosses, including crosses involving principal and
agency orders, will be subject to being broken up upon exposure to the
crowd and the DMM. The Exchange recognizes that a proposed Floor broker
crossed transaction that represents principal orders of two separate
broker-dealer customers differs from the scenario in FAQ 3.23. However,
given the unique limitations on Floor Broker trading, including that
Floor Brokers cannot initiate orders on the Floor and in such
situations, are acting as agents for their broker-dealer customers, the
Exchange believes that the intent is consistent with FAQ 3.23. In
addition, the Cross Function will timely capture the transaction terms
in an automated system, thereby providing a better audit trail for
manually crossed orders. Such an audit trail will facilitate the review
of the Floor Brokers' manual crosses to ensure their compliance with
Rule 611.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the requirements of Section 6(b) of the Act,\13\ in general, and
Section 6(b)(5) of the Act,\14\ 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.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In particular, the Exchange believes that the proposed Cross
Function and proposed amendment to Rule 76--Equities remove impediments
to and perfect the mechanism for a free and open market because the
Cross Function will assist Floor brokers' ability to meet both their
Rule 611 obligations and existing Rule 76--Equities requirements with
respect to crossed orders. Additionally, the Exchange believes the
proposal removes impediments to and perfects the mechanism for a free
and open market because Floor Brokers will have automated tools to
enable their compliance with Rule 611 of Regulation NMS and efficiently
execute the cross transactions. Furthermore, the Exchange believes the
proposal will generate a better audit trail for purposes of Rule 611 of
the crossed transactions.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
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 such 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-NYSEMKT-2012-26 on the subject line.
[[Page 44298]]
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-NYSEMKT-2012-26. 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 the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEMKT-2012-26 and should
be submitted on or before August 17, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-18330 Filed 7-26-12; 8:45 am]
BILLING CODE 8011-01-P
