Self-Regulatory Organizations; National Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 11.19 To Extend a Pilot Program Regarding Clearly Erroneous Executions, 9078-9081 [2013-02707]

Download as PDF 9078 Federal Register / Vol. 78, No. 26 / Thursday, February 7, 2013 / Notices B. Self-Regulatory Organization’s Statement on Burden on Competition CBOE 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. To the contrary, the Exchange believes that the Financial Industry Regulatory Authority (‘‘FINRA’’) and other national securities exchanges are also filing similar proposals, and thus, that the proposal will help to ensure consistent rules across market centers. investor confusion that could result from a temporary interruption in the pilot program. For this reason, the Commission designates the proposed rule change to be operative upon filing.15 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. Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 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–CBOE– 2013–012 and should be submitted on or before February 28, 2013. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. 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: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Kevin M. O’Neill, Deputy Secretary. 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–CBOE–2013–012 on the subject line. SECURITIES AND EXCHANGE COMMISSION III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposed rule change does not (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 11 and Rule 19b–4(f)(6)(iii) thereunder.12 A proposed rule change filed under Rule 19b–4(f)(6) 13 normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii) 14 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, as it will allow the pilot program to continue uninterrupted, thereby avoiding the mstockstill on DSK4VPTVN1PROD with NOTICES 11 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6)(iii). As required under Rule 19b–4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the 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. 13 17 CFR 240.19b–4(f)(6). 14 17 CFR 240.19b–4(f)(6)(iii). 12 17 VerDate Mar<15>2010 17:45 Feb 06, 2013 Jkt 229001 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–CBOE–2013–012. 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., 15 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). PO 00000 Frm 00052 Fmt 4703 Sfmt 4703 [FR Doc. 2013–02705 Filed 2–6–13; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–68803; File No. SR–NSX– 2013–06] Self-Regulatory Organizations; National Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 11.19 To Extend a Pilot Program Regarding Clearly Erroneous Executions February 1, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 30, 2013, National Stock Exchange, Inc. (‘‘NSX®’’ or the ‘‘Exchange’’) 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 Exchange. The Commission is publishing this notice to solicit comment 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 extend a pilot program related to Rule 11.19, entitled ‘‘Clearly Erroneous Executions.’’ The Exchange also proposes to adopt new paragraph (j) to Rule 11.19 in connection with the upcoming operation of the Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS 16 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\07FEN1.SGM 07FEN1 Federal Register / Vol. 78, No. 26 / Thursday, February 7, 2013 / Notices under the Act (the ‘‘Limit Up-Limit Down Plan’’ or ‘‘Plan’’).3 The Exchange has designated this proposal as noncontroversial and provided the Commission with the notice required by Rule 19b–4(f)(6)(iii) under the Act.4 The text of the proposed rule change is available on the Exchange’s Web site at https://www.nsx.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 Exchange 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. 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 mstockstill on DSK4VPTVN1PROD with NOTICES 1. Purpose The purpose of this filing is to extend the effectiveness of the Exchange’s current rule applicable to Clearly Erroneous Executions and to adopt new paragraph (j) to Rule 11.19 in connection with the upcoming operation of the Limit Up-Limit Down Plan. Proposal To Extend Pilot Portions of Rule 11.19, explained in further detail below, are currently operating as a pilot program set to expire on February 4, 2013.5 The Exchange proposes to extend the pilot program to September 30, 2013. On September 10, 2010, the Commission approved, on a pilot basis, changes to NSX Rule 11.19 to provide for uniform treatment: (1) Of clearly erroneous execution reviews in multistock events involving twenty or more securities; and (2) in the event transactions occur that result in the issuance of an individual stock trading pause by the primary market and subsequent transactions that occur before the trading pause is in effect on 3 See Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012) (the ‘‘Limit Up-Limit Down Release’’). 4 17 CFR 240.19b–4(f)(6)(iii). 5 Securities Exchange Act Release No. 67576 (August 2, 2012), 77 FR 47452 (August 8, 2012) (SR–NSX–2012–11). VerDate Mar<15>2010 17:45 Feb 06, 2013 Jkt 229001 the Exchange.6 The Exchange also adopted additional changes to Rule 11.19 that reduced the ability of the Exchange to deviate from the objective standards set forth in Rule 11.19.7 The Exchange believes the benefits to market participants from the more objective clearly erroneous executions rule should continue on a pilot basis through September 30, 2013, which is the date that the Exchange anticipates that the phased implementation of the Limit UpLimit Down Plan will be complete. As explained in further detail below, although the Limit Up-Limit Down Plan is intended to prevent executions that would need to be nullified as clearly erroneous, the Exchange believes that certain protections should be maintained while the industry gains initial experience operating with the Limit Up-Limit Down Plan, including the provisions of Rule 11.19 that currently operate as a pilot. Proposed Limit Up-Limit Down Provision to Rule 11.19 The Exchange proposes to adopt new paragraph (j) to Rule 11.19, to provide that the existing provisions of Rule 11.19 will continue to apply to all Exchange transactions, including transactions in securities subject to the Plan, other than as set forth in proposed paragraph (j). Accordingly, other than as proposed below, the Exchange proposes to maintain and continue to apply the Clearly Erroneous Execution standards in the same way that it does today. Notably, this means that the Exchange might nullify transactions that occur within the price bands disseminated pursuant to the Limit Up-Limit Down Plan to the extent such transactions qualify as clearly erroneous under existing criteria. As an example, assume that a Tier 1 security pursuant to the Plan has a reference price pursuant to both the Plan and Rule 11.19 of $100.00. The lower pricing band under the Plan would be $95.00 and the upper pricing band under the Plan would be $105.00. An execution could occur on the Exchange in this security at $96.00, as this is within the Plan’s pricing bands. However, if subjected to review as potentially clearly erroneous, the Exchange would nullify an execution at $96.00 as clearly erroneous because it exceeds the 3% threshold that is in place pursuant to Rule 11.19(c)(1) for securities priced above $50.00 (i.e., with a reference price of $100.00, any transactions at or below $97.00 or above $103.00 could be nullified as clearly 6 Securities Exchange Act Release No. 62886 (September 10, 2010), 75 FR 56613 (September 16, 2010) (SR–NSX–2010–07). PO 00000 Frm 00053 Fmt 4703 Sfmt 4703 9079 erroneous). Accordingly, this proposal maintains the status quo with respect to reviews of Clearly Erroneous Executions and the application of objective numerical guidelines by the Exchange. The proposal does not increase the discretion afforded to the Exchange in connection with reviews of Clearly Erroneous Executions. The Limit Up-Limit Down Plan is designed to prevent executions from occurring outside of dynamic price bands disseminated to the public by the single plan processor as defined in the Limit Up-Limit Down Plan.8 The possibility remains that the Exchange could experience a technology or systems problem with respect to the implementation of the price bands disseminated pursuant to the Plan. To address such possibilities, the Exchange proposes to adopt language to make clear that if an Exchange technology or systems issue results in any transaction occurring outside of the price bands disseminated pursuant to the Plan, an Officer of the Exchange or senior level employee designee, acting on his or her own motion or at the request of a third party, shall review and declare any such trades null and void. Absent extraordinary circumstances, any such action of the Officer of the Exchange or other senior level employee designee shall be taken in a timely fashion, generally within thirty (30) minutes of the detection of the erroneous transaction. When extraordinary circumstances exist, any such action of the Officer of the Exchange or other senior level employee designee must be taken by no later than the start of Regular Trading Hours 9 on the trading day following the date on which the execution(s) under review occurred. Although the Exchange will act as promptly as possible and the proposed objective standard (i.e., whether an execution occurred outside the band) should make it feasible to quickly make a determination, there may be circumstances in which additional time may be needed for verification of facts or coordination with outside parties, including the single plan processor responsible for disseminating the price bands and other market centers. Accordingly, the Exchange believes it necessary to maintain some flexibility to make a determination outside of the thirty (30) minute guideline. In addition, the Exchange proposes that a transaction that is nullified pursuant to new paragraph (j) would be appealable in accordance with the provisions of 8 See Limit Up-Limit Down Release, supra note 3. Trading Hours commence at 9:30 a.m. Eastern Time. See NSX Rule 1.5(R). 9 Regular E:\FR\FM\07FEN1.SGM 07FEN1 9080 Federal Register / Vol. 78, No. 26 / Thursday, February 7, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES Rule 11.19(e)(2). In addition, the Exchange proposes to make clear that in the event that a single plan processor experiences a technology or systems problem that prevents the dissemination of price bands, the Exchange would make the determination of whether to nullify transactions based on Rule 11.19(a)–(i). The Exchange believes that cancelling trades that occur outside of the price bands disseminated pursuant to the Plan is consistent with the purpose and intent of the Plan, as such transactions are not intended to occur in the first place. If transactions do occur outside of the price bands and no exception applies—which necessarily would be caused by a technology or systems issue—then the Exchange believes the appropriate result is to nullify such transactions. 2. Statutory Basis The Exchange believes that its proposal is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.10 In particular, the proposal is consistent with Section 6(b)(5) of the Act,11 because it would promote just and equitable principles of trade, remove impediments to, and perfect the mechanism of, a free and open market and a national market system. The Exchange believes that the pilot program promotes just and equitable principles of trade in that it promotes transparency and uniformity across markets concerning review of transactions as clearly erroneous. More specifically, the Exchange believes that the extension of the pilot would help assure that the determination of whether a clearly erroneous trade has occurred will be based on clear and objective criteria, and that the resolution of the incident will occur promptly through a transparent process. The proposed rule change would also help assure consistent results in handling erroneous trades across the U.S. markets, thus furthering fair and orderly markets, the protection of investors and the public interest. Although the Limit Up-Limit Down Plan will be operational during the same time period as the proposed extended pilot, the Exchange believes that maintaining the pilot for at least through the phased implementation of the Plan is operational will help to protect against unanticipated consequences. To that end, the 10 15 11 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Mar<15>2010 17:45 Feb 06, 2013 Jkt 229001 extension will allow the Exchange to determine whether Rule 11.19 is necessary once the Plan is operational and, if so, whether improvements can be made. Further, the Exchange believes it consistent with the protection of investors and the public interest to adopt objective criteria to nullify transactions that occur outside of the Plan’s price bands when such transactions should not have been executed but were due to a systems or technology issue. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change implicates any competitive issues. To the contrary, the Exchange believes that the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) and other national securities exchanges are also filing similar proposals, and thus, that the proposal will help to ensure consistent rules across market centers. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments on the proposed rule change were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposed rule change does not (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 12 and Rule 19b–4(f)(6)(iii) thereunder.13 A proposed rule change filed under Rule 19b–4(f)(6) 14 normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii) 15 the Commission may designate a shorter time if such action is consistent with the protection 12 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6)(iii). As required under Rule 19b–4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the 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. 14 17 CFR 240.19b–4(f)(6). 15 17 CFR 240.19b–4(f)(6)(iii). 13 17 PO 00000 Frm 00054 Fmt 4703 Sfmt 4703 of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, as it will allow the pilot program to continue uninterrupted, thereby avoiding the investor confusion that could result from a temporary interruption in the pilot program. For this reason, the Commission designates the proposed rule change to be operative upon filing.16 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–NSX–2013–06 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–NSX–2013–06. 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 16 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). E:\FR\FM\07FEN1.SGM 07FEN1 Federal Register / Vol. 78, No. 26 / Thursday, February 7, 2013 / Notices 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 10:00 a.m. and 3:00 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–NSX– 2013–06 and should be submitted on or before February 28, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–02707 Filed 2–6–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68809; File No. SR– NYSEArca-2013–12] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Arca Equities Rule 7.10, Which Governs Clearly Erroneous Executions, Extending the Effective Date of the Pilot Until September 30, 2013 and Adopting New Paragraph (i) to NYSE Arca Equities Rule 7.10 In Connection With the Upcoming Operation of the Plan To Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS Under the Act mstockstill on DSK4VPTVN1PROD with NOTICES February 1, 2013. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on January 30, 2013, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the CFR 200.30–3(a)(12). U.S.C.78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 17:45 Feb 06, 2013 I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to to [sic] amend NYSE Arca Equities Rule 7.10, which governs clearly erroneous executions, to extend the effective date of the pilot by which portions of such Rule operate until September 30, 2013. The pilot is currently scheduled to expire on February 4, 2013. The Exchange also proposes to adopt new paragraph (i) to NYSE Arca Equities Rule 7.10 in connection with the upcoming operation of the Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS under the Act (the ‘‘Limit Up-Limit Down Plan’’ or ‘‘Plan’’).4 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 NYSE Arca Equities Rule 7.10, which governs clearly erroneous executions, to extend the effective date of the pilot by which portions of such Rule operate, until September 30, 2013. The pilot is currently scheduled to expire on February 4, 2013.5 The Exchange also 4 See Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012) (the ‘‘Limit Up-Limit Down Release’’). 5 See Securities Exchange Act Release No. 62886 (September 10, 2010), 75 FR 56613 (September 16, 17 17 VerDate Mar<15>2010 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. Jkt 229001 PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 9081 proposes to add new paragraph (i) to NYSE Arca Equities Rule 7.10 in connection with the upcoming implementation of the Limit Up-Limit Down Plan. On September 10, 2010, the Commission approved, on a pilot basis, market-wide amendments to exchanges’ rules for clearly erroneous executions to set forth clearer standards and curtail discretion with respect to breaking erroneous trades. In connection with this pilot initiative, the Exchange amended NYSE Arca Equities Rule 7.10(c), (e)(2), (f), and (g). The amendments provide for uniform treatment of clearly erroneous execution reviews (1) in Multi-Stock Events 6 involving twenty or more securities, and (2) in the event transactions occur that result in the issuance of an individual security trading pause by the primary market and subsequent transactions that occur before the trading pause is in effect on the Exchange.7 The amendments also eliminated appeals of certain rulings made in conjunction with other exchanges with respect to clearly erroneous transactions and limited the Exchange’s discretion to deviate from Numerical Guidelines set forth in the Rule in the event of system disruptions or malfunctions. If the pilot were not extended, the prior versions of paragraphs (c), (e)(2), (f), and (g) of NYSE Arca Equities Rule 7.10 would be in effect, and NYSE Arca would have different rules than other exchanges and greater discretion in connection with breaking clearly erroneous transactions. The Exchange believes the benefits to market participants from the more objective clearly erroneous executions rule should continue on a pilot basis through September 30, 2013, which is the date that the Exchange anticipates that the phased implementation of the Limit UpLimit Down Plan will be complete. As 2010) (SR–NYSEArca–2010–58). See also Securities Exchange Act Release Nos. 63482 (December 9, 2010), 75 FR 78331 (December 15, 2010) (SR– NYSEArca–2010–113); 64234 (April 7, 2011), 76 FR 20399 (April 12, 2011) (SR–NYSEArca–2011–15); 65065 (August 9, 2011), 76 FR 50502 (August 15, 2011) (SR–NYSEArca–2011–56); 66135 (January 11, 2012), 77 FR 2590 (January 18, 2012) (SR– NYSEArca–2011–100); and 67566 (August 1, 2012), 77 FR 47142 (August 7, 2012) (SR–NYSEArca– 2012–79). 6 Terms not defined herein are defined in NYSE Arca Equities Rule 7.10. 7 Separately, the Exchange has proposed to extend the effective date of the trading pause pilot under NYSE Arca Equities Rule 7.11, which requires to the Exchange to pause trading in an individual security listed on the Exchange if the price moves by a specified percentage as compared to prices of that security in the preceding fiveminute period during a trading day. See Securities Exchange Act Release No. 68748 (January 28, 2013) (SR–NYSEArca–2012–02) [sic]. E:\FR\FM\07FEN1.SGM 07FEN1

Agencies

[Federal Register Volume 78, Number 26 (Thursday, February 7, 2013)]
[Notices]
[Pages 9078-9081]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02707]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68803; File No. SR-NSX-2013-06]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 11.19 To Extend a Pilot Program Regarding Clearly Erroneous 
Executions

February 1, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 30, 2013, National Stock Exchange, Inc. 
(``NSX[supreg]'' or the ``Exchange'') 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 Exchange. The Commission is publishing this notice to solicit 
comment on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend a pilot program related to Rule 
11.19, entitled ``Clearly Erroneous Executions.'' The Exchange also 
proposes to adopt new paragraph (j) to Rule 11.19 in connection with 
the upcoming operation of the Plan to Address Extraordinary Market 
Volatility Pursuant to Rule 608 of Regulation NMS

[[Page 9079]]

under the Act (the ``Limit Up-Limit Down Plan'' or ``Plan'').\3\ The 
Exchange has designated this proposal as non-controversial and provided 
the Commission with the notice required by Rule 19b-4(f)(6)(iii) under 
the Act.\4\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release'').
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available on the Exchange's 
Web site at https://www.nsx.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 Exchange 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. 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 purpose of this filing is to extend the effectiveness of the 
Exchange's current rule applicable to Clearly Erroneous Executions and 
to adopt new paragraph (j) to Rule 11.19 in connection with the 
upcoming operation of the Limit Up-Limit Down Plan.
Proposal To Extend Pilot
    Portions of Rule 11.19, explained in further detail below, are 
currently operating as a pilot program set to expire on February 4, 
2013.\5\ The Exchange proposes to extend the pilot program to September 
30, 2013.
---------------------------------------------------------------------------

    \5\ Securities Exchange Act Release No. 67576 (August 2, 2012), 
77 FR 47452 (August 8, 2012) (SR-NSX-2012-11).
---------------------------------------------------------------------------

    On September 10, 2010, the Commission approved, on a pilot basis, 
changes to NSX Rule 11.19 to provide for uniform treatment: (1) Of 
clearly erroneous execution reviews in multi-stock events involving 
twenty or more securities; and (2) in the event transactions occur that 
result in the issuance of an individual stock trading pause by the 
primary market and subsequent transactions that occur before the 
trading pause is in effect on the Exchange.\6\ The Exchange also 
adopted additional changes to Rule 11.19 that reduced the ability of 
the Exchange to deviate from the objective standards set forth in Rule 
11.19.7 The Exchange believes the benefits to market participants from 
the more objective clearly erroneous executions rule should continue on 
a pilot basis through September 30, 2013, which is the date that the 
Exchange anticipates that the phased implementation of the Limit Up-
Limit Down Plan will be complete. As explained in further detail below, 
although the Limit Up-Limit Down Plan is intended to prevent executions 
that would need to be nullified as clearly erroneous, the Exchange 
believes that certain protections should be maintained while the 
industry gains initial experience operating with the Limit Up-Limit 
Down Plan, including the provisions of Rule 11.19 that currently 
operate as a pilot.
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 62886 (September 10, 
2010), 75 FR 56613 (September 16, 2010) (SR-NSX-2010-07).
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Proposed Limit Up-Limit Down Provision to Rule 11.19
    The Exchange proposes to adopt new paragraph (j) to Rule 11.19, to 
provide that the existing provisions of Rule 11.19 will continue to 
apply to all Exchange transactions, including transactions in 
securities subject to the Plan, other than as set forth in proposed 
paragraph (j). Accordingly, other than as proposed below, the Exchange 
proposes to maintain and continue to apply the Clearly Erroneous 
Execution standards in the same way that it does today. Notably, this 
means that the Exchange might nullify transactions that occur within 
the price bands disseminated pursuant to the Limit Up-Limit Down Plan 
to the extent such transactions qualify as clearly erroneous under 
existing criteria. As an example, assume that a Tier 1 security 
pursuant to the Plan has a reference price pursuant to both the Plan 
and Rule 11.19 of $100.00. The lower pricing band under the Plan would 
be $95.00 and the upper pricing band under the Plan would be $105.00. 
An execution could occur on the Exchange in this security at $96.00, as 
this is within the Plan's pricing bands. However, if subjected to 
review as potentially clearly erroneous, the Exchange would nullify an 
execution at $96.00 as clearly erroneous because it exceeds the 3% 
threshold that is in place pursuant to Rule 11.19(c)(1) for securities 
priced above $50.00 (i.e., with a reference price of $100.00, any 
transactions at or below $97.00 or above $103.00 could be nullified as 
clearly erroneous). Accordingly, this proposal maintains the status quo 
with respect to reviews of Clearly Erroneous Executions and the 
application of objective numerical guidelines by the Exchange. The 
proposal does not increase the discretion afforded to the Exchange in 
connection with reviews of Clearly Erroneous Executions.
    The Limit Up-Limit Down Plan is designed to prevent executions from 
occurring outside of dynamic price bands disseminated to the public by 
the single plan processor as defined in the Limit Up-Limit Down 
Plan.\8\ The possibility remains that the Exchange could experience a 
technology or systems problem with respect to the implementation of the 
price bands disseminated pursuant to the Plan. To address such 
possibilities, the Exchange proposes to adopt language to make clear 
that if an Exchange technology or systems issue results in any 
transaction occurring outside of the price bands disseminated pursuant 
to the Plan, an Officer of the Exchange or senior level employee 
designee, acting on his or her own motion or at the request of a third 
party, shall review and declare any such trades null and void. Absent 
extraordinary circumstances, any such action of the Officer of the 
Exchange or other senior level employee designee shall be taken in a 
timely fashion, generally within thirty (30) minutes of the detection 
of the erroneous transaction. When extraordinary circumstances exist, 
any such action of the Officer of the Exchange or other senior level 
employee designee must be taken by no later than the start of Regular 
Trading Hours \9\ on the trading day following the date on which the 
execution(s) under review occurred. Although the Exchange will act as 
promptly as possible and the proposed objective standard (i.e., whether 
an execution occurred outside the band) should make it feasible to 
quickly make a determination, there may be circumstances in which 
additional time may be needed for verification of facts or coordination 
with outside parties, including the single plan processor responsible 
for disseminating the price bands and other market centers. 
Accordingly, the Exchange believes it necessary to maintain some 
flexibility to make a determination outside of the thirty (30) minute 
guideline. In addition, the Exchange proposes that a transaction that 
is nullified pursuant to new paragraph (j) would be appealable in 
accordance with the provisions of

[[Page 9080]]

Rule 11.19(e)(2). In addition, the Exchange proposes to make clear that 
in the event that a single plan processor experiences a technology or 
systems problem that prevents the dissemination of price bands, the 
Exchange would make the determination of whether to nullify 
transactions based on Rule 11.19(a)-(i).
---------------------------------------------------------------------------

    \8\ See Limit Up-Limit Down Release, supra note 3.
    \9\ Regular Trading Hours commence at 9:30 a.m. Eastern Time. 
See NSX Rule 1.5(R).
---------------------------------------------------------------------------

    The Exchange believes that cancelling trades that occur outside of 
the price bands disseminated pursuant to the Plan is consistent with 
the purpose and intent of the Plan, as such transactions are not 
intended to occur in the first place. If transactions do occur outside 
of the price bands and no exception applies--which necessarily would be 
caused by a technology or systems issue--then the Exchange believes the 
appropriate result is to nullify such transactions.
 2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\10\ In particular, 
the proposal is consistent with Section 6(b)(5) of the Act,\11\ because 
it would promote just and equitable principles of trade, remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system. The Exchange believes that the pilot 
program promotes just and equitable principles of trade in that it 
promotes transparency and uniformity across markets concerning review 
of transactions as clearly erroneous. More specifically, the Exchange 
believes that the extension of the pilot would help assure that the 
determination of whether a clearly erroneous trade has occurred will be 
based on clear and objective criteria, and that the resolution of the 
incident will occur promptly through a transparent process. The 
proposed rule change would also help assure consistent results in 
handling erroneous trades across the U.S. markets, thus furthering fair 
and orderly markets, the protection of investors and the public 
interest. Although the Limit Up-Limit Down Plan will be operational 
during the same time period as the proposed extended pilot, the 
Exchange believes that maintaining the pilot for at least through the 
phased implementation of the Plan is operational will help to protect 
against unanticipated consequences. To that end, the extension will 
allow the Exchange to determine whether Rule 11.19 is necessary once 
the Plan is operational and, if so, whether improvements can be made. 
Further, the Exchange believes it consistent with the protection of 
investors and the public interest to adopt objective criteria to 
nullify transactions that occur outside of the Plan's price bands when 
such transactions should not have been executed but were due to a 
systems or technology issue.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 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 
implicates any competitive issues. To the contrary, the Exchange 
believes that the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') and other national securities exchanges are also filing 
similar proposals, and thus, that the proposal will help to ensure 
consistent rules across market centers.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change does not (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \15\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing.
---------------------------------------------------------------------------

    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will allow the pilot program to continue uninterrupted, thereby 
avoiding the investor confusion that could result from a temporary 
interruption in the pilot program. For this reason, the Commission 
designates the proposed rule change to be operative upon filing.\16\
---------------------------------------------------------------------------

    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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 rule-comments@sec.gov. Please include 
File Number SR-NSX-2013-06 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-NSX-2013-06. 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

[[Page 9081]]

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 10:00 a.m. and 3:00 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-NSX-2013-06 and should be submitted on or before 
February 28, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02707 Filed 2-6-13; 8:45 am]
BILLING CODE 8011-01-P
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