Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Rule 1000, 21457-21460 [2013-08321]

Download as PDF Federal Register / Vol. 78, No. 69 / Wednesday, April 10, 2013 / Notices change proposed herein is based on Nasdaq Rule 4751(f)(15) and EDGX Rule 11.5(c)(15).11 By adopting changes to functionality to align with functionality in place elsewhere, as well as simplifying such functionality, the Exchange believes that it is reducing the potential for confusion amongst market participants. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. TKELLEY on DSK3SPTVN1PROD with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not significantly affect the protection of investors or the public interest, does not impose any significant burden on competition, and, by its terms, does not become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 12 and Rule 19b– 4(f)(6) thereunder.13 The Exchange has requested that the Commission waive the 30-day operative delay. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. Doing so will allow the Exchange to make the improvements and clarifications to the Market Maker Peg Order effective immediately and address any technical or operative issues that member organizations may experience if the Exchange’s implementation of Market Maker Peg Order is different from that of other exchanges. Therefore, the Commission designates the proposal operative upon filing.14 At any time within 60 days of the filing of the proposed rule change, the 11 See Securities Exchange Act Release Nos. 67203 (June 14, 2012), 77 FR 37086 (June 20, 2012) (SR NASDAQ–2012–066); 67959 (October 2, 2012), 77 FR 61449 (October 9, 2012) (SR–EDGX–2012– 44); 68596 (January 7, 2013), 78 FR 2477 (January 11, 2013) (SR–EDGX–2012–49). 12 15 U.S.C. 78s(b)(3)(A). 13 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires the Exchange to give the Commission written notice of the Exchange’s intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 14 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Mar<15>2010 17:59 Apr 09, 2013 Jkt 229001 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. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 15 of the Act to determine whether the proposed rule change should be approved or 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: 21457 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–BYX– 2013–011 and should be submitted on or before May 1, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–08329 Filed 4–9–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION 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–BYX–2013–011 on the subject line. [Release No. 34–69295; File No. SR–NYSE– 2013–27] 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–BYX–2013–011. 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 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal 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 April 2, 2013, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 15 15 PO 00000 U.S.C. 78s(b)(2)(B). Frm 00120 Fmt 4703 Sfmt 4703 Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Rule 1000 April 4, 2013. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to phase out the functionality associated with liquidity replenishment points (‘‘LRPs’’) to coincide with the implementation of the Limit Up—Limit Down Plan (the ‘‘Plan’’) by adding language to NYSE Rule 1000 that, beginning on April 8, 2013, LRPs will no longer be in effect for Tier 1 NMS Stocks, and on the earlier of August 1, 2013 or such date as Phase II of the Limit Up—Limit Down Plan is implemented, LRPs will no longer be in effect for all NMS Stocks. The text of the proposed rule change is 16 17 CFR 200.30–3(a)(12). U.S.C.78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 E:\FR\FM\10APN1.SGM 10APN1 21458 Federal Register / Vol. 78, No. 69 / Wednesday, April 10, 2013 / Notices available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, on the Commission’s Web site at https://www.sec.gov, 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. TKELLEY on DSK3SPTVN1PROD with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to phase out the functionality associated with LRPs to coincide with the implementation of the Plan by amending Rule 1000 to provide that, beginning on April 8, 2013, LRPs will no longer be in effect for Tier 1 NMS Stocks, and beginning on the earlier of August 1, 2013 or such date as Phase II of the Limit Up—Limit Down Plan is implemented, LRPs will no longer be in effect for all NMS stocks. The LRP mechanism was approved in 2006 to address market volatility on the Exchange.4 Specifically, the Exchange uses LRPs, which are triggered by rapid price movements over a short period of time, to moderate volatility in a security by temporarily converting the electronic market for the security into an auction market to afford new trading interests the opportunity to add liquidity. The Exchange additionally believes that LRPs were effective in moderating some of the impact from the events of May 6, 2010, for NYSE trading customers as evidenced by the lack of erroneous trades on the Exchange. LRPs also served as the basis for the Plan,5 as well as the implementation of the short sale circuit breakers. Indeed, for many years, LRPs have been a key selling point of the Exchange to both investors and listed companies who, like the Exchange, believe that stable prices 4 See Securities Exchange Act Release No. 53539 (March 22, 2006), 71 FR 16353 (March 31, 2006) (SR–NYSE–2004–05). 5 See Securities Exchange Act Release No. 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012) (‘‘LULD Release’’). VerDate Mar<15>2010 17:59 Apr 09, 2013 Jkt 229001 further the purposes of protecting investors against unnecessary price swings thereby enhancing investor confidence in the U.S. securities markets. LRPs have delivered concrete benefits to public investors in the many erroneous or aberrant trades they have prevented, and have allowed the Exchange to communicate in an orderly way with issuers during periods of market stress. Nevertheless, the Exchange proposes to phase out LRPs as a result of the scheduled implementation of the Plan, which was adopted in response to the market disruption of May 6, 2010. Specifically, in addressing comments focused on the relationship between the Plan and exchange-specific volatility mechanisms—such as the NYSE’s LRPs—the Commission stated that it was ‘‘aware of the potential for unnecessary complexity that could result if the Plan were adopted, and exchange-specific volatility mechanisms were retained’’ and ‘‘[t]o this end, the Commission expects that upon implementation of the Plan, such exchange-specific volatility mechanisms would be discontinued by the respective exchanges.’’ 6 Although the Exchange understands the need for industry-wide responses to address extraordinary volatility events such as the market disruption that occurred on May 6, 2010, the Exchange does not agree that such initiatives should come at the expense of existing investor protection mechanisms, particularly without any impact analysis, because such initiatives can have unintended consequences to the detriment of investors and the marketplace as a whole. In light of the fact that only potential concerns were noted and there is no evidence of systemic problems that would be caused by simultaneously operating the Plan and LRPs, the Exchange continues to believe that data could have been collected during the Plan pilot period and would have served as an excellent testing ground to determine if both the Limit Up—Limit Down bands as well as the LRP bands could function effectively together. The Exchange believes that only after such careful monitoring could an informed determination be made that accurately assesses whether the functionalities were redundant or conflicting so as to warrant continuing with one or the other, or both. The Plan pilot period could also have afforded the Commission and the Exchange the ability to compile and analyze data that would contribute to the making of an 6 Id. PO 00000 at n. 182 (emphasis added). Frm 00121 Fmt 4703 Sfmt 4703 informed decision with respect to the merits of both programs. Indeed, there is nothing particularly complex about how LRPs would have operated alongside the Plan. As the LRP bands are generally narrower than the Limit Up—Limit Down bands, LRPs might have continued to serve their current purpose of creating a temporary auction market buffer to rapid and extraordinary price movements occurring in the electronic market. They would have been triggered within Limit Up—Limit Down bands, would have applied only to the Exchange, and trading on away markets could have continued to occur because the NYSE quotation is not protected during an LRP. Moreover, the Exchange believes that any incremental complexity the LRPs would have added to the operation of the Plan would have been outweighed substantially by their proven effectiveness in minimizing rapid price movements that are driven by erroneous orders. Furthermore, the Exchange wishes to respectfully, but strenuously, object not only to the substance of the Commission’s decision to effectively insist that the Exchange abandon LRPs, but also the policy implications of the decision. From a policy perspective, the Commission’s required removal of LRPs would seem to embody an effort to force markets ‘‘into a single mold’’ 7 for purposes of addressing extraordinary volatility, and to obstruct the development of ‘‘subsystems within the national market system,’’ objectives which are inconsistent with the 1975 Act Amendments.8 7 See H.R. Rep. No. 94–123, at 51 (1975) (emphasis added) (‘‘The objective is to enhance competition and to allow economic force, interacting within a fair regulatory field, to arrive at appropriate variations of practices and services. Neither the markets themselves nor the brokerdealer participant in these markets should be forced into a single mold. Market centers should compete and evolve according to their own natural genius and all actions to compel uniformity must be measured and justified as necessary to accomplish the salient purposes of the Securities Exchange Act, assure the maintenance of fair and orderly markets and to provide price protection for the orders of investors.’’). 8 See S. Rep. No. 94–75 (1975). While there is no disputing that Congress intended to grant broad and discretionary market oversight powers to the Commission, it is also important to recognize the intended limits of that discretion. The Senate Committee Report sheds particular light on those limits with respect to uniformity of structure: ‘‘This is not to say that it is the goal of the legislation to ignore or eliminate distinctions between exchange markets and over-the-counter markets or other inherent differences or variations in components of a national market system. Some present distinctions may tend to disappear in a national market system, but it is not the intention of the bill to force all markets for all securities into a single mold. Therefore, in implementing the bill’s objectives, the SEC would have the power to classify markets, E:\FR\FM\10APN1.SGM 10APN1 Federal Register / Vol. 78, No. 69 / Wednesday, April 10, 2013 / Notices Nevertheless, the Exchange proposes to phase out 9 the LRP functionality for securities as they are covered by the Plan in coordination with the Plan’s Phase I and Phase II implementation timelines.10 LRPs will remain in place for any securities not covered by the Plan. As such, the Exchange proposes to add rule language that, beginning on April 8, 2013, LRPs will no longer be in effect for Tier 1 NMS Stocks, and on the earlier of August 1, 2013 or such date as Phase II of the Limit Up—Limit Down Plan is implemented, LRPs will no longer be in effect for all NMS Stocks. In order to accommodate the phasing out process, prior to the implementation of Phase II of the Plan, the Exchange will file a separate rule proposal deleting the references to LRP functionality in NYSE Rules 60, 79A, 104, 128, and 1000. The Exchange will apprise members and member organizations of the dates of the discontinuation of the LRP functionality via an Information Memorandum. The Exchange plans to revisit the merits of discontinuing the LRP functionality after the initial Plan pilot period has ended and may file to reincorporate the LRP functionality at that time as well. TKELLEY on DSK3SPTVN1PROD with NOTICES 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements of Section 6(b) of the Act,11 in general, and Section 6(b)(5) of the Act,12 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. However, the Exchange is discontinuing the LRP functionality and deleting corresponding rule references to implement changes that the Commission has requested and expects as reflected in the LULD Release. Moreover, the related Information Memorandum to members and member organizations would provide advance firms, and securities in any manner it deems necessary or appropriate in the public interest or for the protection of investors and to facilitate the development of subsystems within the national market system.’’ See id. at 7 (emphasis added). 9 The Exchange would note that the suspension, rather than the elimination thereof, of LRPs for the duration of the pilot period would not be put before the Commission for consideration. 10 See, e.g., Securities Exchange Act Release No. 68785 (January 31, 2013), 78 FR 8646 (February 6, 2013) (SR–NYSEArca–2013–06). 11 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 17:59 Apr 09, 2013 Jkt 229001 notice to NYSE members and member organizations that the Exchange would cease offering the LRP functionality in furtherance of the Commission’s expectations. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose a burden on competition because the Exchange is discontinuing the LRP functionality to fulfill the Commission’s expectations. In this respect, the Exchange notes that because Commission expects all exchanges to discontinue their respective volatility mechanisms, there should be no burden on competition because all exchanges as well as their members and issuers would be similarly situated. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 13 and Rule 19b–4(f)(6) thereunder.14 Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(6)(iii) thereunder. A proposed rule change filed under Rule 19b–4(f)(6) 15 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),16 the Commission may designate a shorter time if such action is consistent with the 13 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires the Exchange to give the Commission written notice of the Exchange’s intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 15 17 CFR 240.19b–4(f)(6). 16 17 CFR 240.19b–4(f)(6)(iii). 14 17 PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 21459 protection of investors and the public interest. The Exchange has asked the Commission to designate an operative date of April 8, 2013. The Commission believes that waiving the operative delay and designating April 8, 2013 as the operative date of the proposed rule change is consistent with the protection of investors and the public interest because such waiver would allow the proposed rule change to be operative on the initial date of Plan operations. Accordingly, the Commission hereby grants the Exchange’s request and designates an operative date of April 8, 2013.17 At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml ); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NYSE–2013–27 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2013–27. 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 17 For purposes only of waiving the operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). E:\FR\FM\10APN1.SGM 10APN1 21460 Federal Register / Vol. 78, No. 69 / Wednesday, April 10, 2013 / Notices 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR–NYSE– 2013–27 and should be submitted on or before May 1, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–08321 Filed 4–9–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69302; File No. SR–NSCC– 2012–10] Self-Regulatory Organizations; National Securities Clearing Corporation; Order Approving Proposed Rule Change To Eliminate the Offset of Its Obligations With Institutional Delivery Transactions That Settle at The Depository Trust Company for the Purpose of Calculating Its Clearing Fund Under Procedure XV of Its Rules & Procedures April 4, 2013. TKELLEY on DSK3SPTVN1PROD with NOTICES I. Introduction On December 17, 2012, National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) proposed rule change SR–NSCC–2012– 10 (‘‘Proposed Rule Change’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’)1 and Rule 19b–4 thereunder.2 The Proposed Rule Change was published in the Federal 18 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 19:19 Apr 09, 2013 Jkt 229001 Register on January 4, 2013.3 The Commission extended the period of review of the Proposed Rule Change on February 5, 2013.4 The Commission received two comment letters to the Proposed Rule Change from one commenter,5 as well as two responses from NSCC to the comment letters.6 This order approves the Proposed Rule Change. II. Description NSCC filed the Proposed Rule Change to permit it to make rule changes to its Rules and Procedures (‘‘Rules’’) designed to eliminate the offset of NSCC obligations with institutional delivery (‘‘ID’’) transactions that settle at The Depository Trust Company (‘‘DTC’’) for the purpose of calculating the NSCC clearing fund (‘‘Clearing Fund’’) under Procedure XV of its Rules, as discussed below. A. ID Offset NSCC maintains a Clearing Fund to have on deposit assets sufficient to satisfy losses that may otherwise be incurred by NSCC as the result of the default of an NSCC member (‘‘Member’’) and the resulting closeout of that Member’s unsettled positions under NSCC’s trade guaranty. Each Member is required to contribute to the Clearing Fund pursuant to a formula calculated daily. The Clearing Fund formula accounts for a variety of risk factors through the application of a number of components, including Value-at-Risk (‘‘VaR’’) 7 and Market Maker Domination (‘‘MMDOM’’).8 3 Release No. 34–68549 (Dec. 28, 2012), 78 FR 792 (Jan. 4, 2013). NSCC also filed an advance notice pursuant to Section 806(e)(1) of the Payment, Clearing, and Settlement Supervision Act of 2010 relating to these changes. Release No. 34–68621 (Jan. 10, 2013), 78 FR 3960 (Jan. 17, 2013). 4 Release No. 34–68829 (Feb. 5, 2013), 78 FR 9751 (Feb. 11, 2013). 5 Comment Letter from Lek Securities Corporation dated January 25, 2013 (‘‘First Lek Letter’’) (https://sec.gov/comments/sr-nscc-2012-810/ nscc2012810-1.pdf), and Comment Letter from Lek Securities Corporation dated March 18, 2013 (‘‘Second Lek Letter’’) (https://sec.gov/comments/srnscc-2012-810/nscc2012810-3.pdf), (collectively, the ‘‘Lek Letters’’). 6 Response Letter from NSCC dated February 22, 2013 (‘‘First NSCC Response’’) (https://sec.gov/ comments/sr-nscc-2012-810/nscc2012810-2.pdf), and Response Letter from NSCC dated March 21, 2013 (‘‘Second NSCC Response’’) (https://sec.gov/ comments/sr-nscc-2012-810/nscc2012810-4.pdf), (collectively, the ‘‘NSCC Responses’’). 7 The VaR component of the Clearing Fund calculation is a core component of the formula and is designed to calculate the amount of money that may be lost on a portfolio over a given period of time that is assumed necessary to liquidate the portfolio, within a given level of confidence. See Release No. 34–68549 (Dec. 28, 2012), 78 FR 792 (Jan. 4, 2013). 8 The MMDOM component of the Clearing Fund calculation is charged to market makers or firms PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 NSCC currently calculates the VaR and MMDOM components of a Member’s Clearing Fund required deposit after allowing for a Member’s net unsettled NSCC positions in a particular CUSIP to be offset by any pending ID transactions settling at DTC in the same CUSIP, which have been confirmed and/or affirmed through an institutional delivery system acceptable to NSCC (‘‘ID Offset’’).9 ID Offset is based on the assumption that in the event of a Member’s insolvency NSCC will be able to close out any trade for which there is a corresponding ID transaction settling at DTC by completing that ID transaction.10 B. Potential Inability To Complete ID Transactions Generally, when NSCC ceases to act for a Member, it is obligated, for those transactions that it has guaranteed, to pay for deliveries made by nondefaulting Members that are due to the failed Member on the day they are due. If NSCC is unable to complete the ID transactions as contemplated by the current Clearing Fund calculation, then NSCC may need to liquidate a portfolio that could be substantially different than the portfolio for which NSCC collected its Clearing Fund, leaving NSCC potentially under-collateralized and exposed to market risk. A defaulting Member’s pending ID transactions may not be completed for a number of reasons. Completion of an ID transaction by its institutional counterparty is voluntary because that counterparty is not a Member, which means it is not bound by NSCC’s Rules and is not party to any legally binding contract with NSCC that requires it or its custodian to complete the transaction. Moreover, based on news that a Member may be in distress or insolvent, the institutional counterparty or its investment adviser may take immediate market action with respect to that clear for them. In calculating the MMDOM, if the sum of the absolute values of net unsettled positions in a security for which the firm in question makes a market is greater than that firm’s excess net capital, NSCC may then charge the firm an amount equal to such excess or the sum of each of the absolute values of the affected net unsettled positions, or a combination of both. MMDOM operates to identify concentration within a given CUSIP. See Release No. 34–68549 (Dec. 28, 2012), 78 FR 792 (Jan. 4, 2013). 9 For purposes of the ID Offset, NSCC includes ID transactions that are confirmed and/or affirmed on trade date, as well as ID transactions affirmed one day after trade date and remain affirmed through settlement date. See Release No. 34–68549 (Dec. 28, 2012), 78 FR 792 (Jan. 4, 2013). 10 ID transactions are included in the ID Offset only if they are on the opposite side of the market from the Member’s net NSCC position (i.e., only if they reduce the net position). See Release No. 34– 68549 (Dec. 28, 2012), 78 FR 792 (Jan. 4, 2013). E:\FR\FM\10APN1.SGM 10APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21457-21460]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08321]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69295; File No. SR-NYSE-2013-27]

Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending NYSE Rule 1000

April 4, 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 April 2, 2013, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to phase out the functionality associated
with liquidity replenishment points (``LRPs'') to coincide with the
implementation of the Limit Up--Limit Down Plan (the ``Plan'') by
adding language to NYSE Rule 1000 that, beginning on April 8, 2013,
LRPs will no longer be in effect for Tier 1 NMS Stocks, and on the
earlier of August 1, 2013 or such date as Phase II of the Limit Up--
Limit Down Plan is implemented, LRPs will no longer be in effect for
all NMS Stocks. The text of the proposed rule change is

[[Page 21458]]

available on the Exchange's Web site at www.nyse.com, at the principal
office of the Exchange, on the Commission's Web site at https://www.sec.gov, 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 phase out the functionality associated
with LRPs to coincide with the implementation of the Plan by amending
Rule 1000 to provide that, beginning on April 8, 2013, LRPs will no
longer be in effect for Tier 1 NMS Stocks, and beginning on the earlier
of August 1, 2013 or such date as Phase II of the Limit Up--Limit Down
Plan is implemented, LRPs will no longer be in effect for all NMS
stocks.
The LRP mechanism was approved in 2006 to address market volatility
on the Exchange.\4\ Specifically, the Exchange uses LRPs, which are
triggered by rapid price movements over a short period of time, to
moderate volatility in a security by temporarily converting the
electronic market for the security into an auction market to afford new
trading interests the opportunity to add liquidity. The Exchange
additionally believes that LRPs were effective in moderating some of
the impact from the events of May 6, 2010, for NYSE trading customers
as evidenced by the lack of erroneous trades on the Exchange. LRPs also
served as the basis for the Plan,\5\ as well as the implementation of
the short sale circuit breakers. Indeed, for many years, LRPs have been
a key selling point of the Exchange to both investors and listed
companies who, like the Exchange, believe that stable prices further
the purposes of protecting investors against unnecessary price swings
thereby enhancing investor confidence in the U.S. securities markets.
LRPs have delivered concrete benefits to public investors in the many
erroneous or aberrant trades they have prevented, and have allowed the
Exchange to communicate in an orderly way with issuers during periods
of market stress.
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\4\ See Securities Exchange Act Release No. 53539 (March 22,
2006), 71 FR 16353 (March 31, 2006) (SR-NYSE-2004-05).
\5\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (``LULD Release'').
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Nevertheless, the Exchange proposes to phase out LRPs as a result
of the scheduled implementation of the Plan, which was adopted in
response to the market disruption of May 6, 2010. Specifically, in
addressing comments focused on the relationship between the Plan and
exchange-specific volatility mechanisms--such as the NYSE's LRPs--the
Commission stated that it was ``aware of the potential for unnecessary
complexity that could result if the Plan were adopted, and exchange-
specific volatility mechanisms were retained'' and ``[t]o this end, the
Commission expects that upon implementation of the Plan, such exchange-
specific volatility mechanisms would be discontinued by the respective
exchanges.'' \6\
---------------------------------------------------------------------------

\6\ Id. at n. 182 (emphasis added).
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Although the Exchange understands the need for industry-wide
responses to address extraordinary volatility events such as the market
disruption that occurred on May 6, 2010, the Exchange does not agree
that such initiatives should come at the expense of existing investor
protection mechanisms, particularly without any impact analysis,
because such initiatives can have unintended consequences to the
detriment of investors and the marketplace as a whole. In light of the
fact that only potential concerns were noted and there is no evidence
of systemic problems that would be caused by simultaneously operating
the Plan and LRPs, the Exchange continues to believe that data could
have been collected during the Plan pilot period and would have served
as an excellent testing ground to determine if both the Limit Up--Limit
Down bands as well as the LRP bands could function effectively
together. The Exchange believes that only after such careful monitoring
could an informed determination be made that accurately assesses
whether the functionalities were redundant or conflicting so as to
warrant continuing with one or the other, or both. The Plan pilot
period could also have afforded the Commission and the Exchange the
ability to compile and analyze data that would contribute to the making
of an informed decision with respect to the merits of both programs.
Indeed, there is nothing particularly complex about how LRPs would
have operated alongside the Plan. As the LRP bands are generally
narrower than the Limit Up--Limit Down bands, LRPs might have continued
to serve their current purpose of creating a temporary auction market
buffer to rapid and extraordinary price movements occurring in the
electronic market. They would have been triggered within Limit Up--
Limit Down bands, would have applied only to the Exchange, and trading
on away markets could have continued to occur because the NYSE
quotation is not protected during an LRP. Moreover, the Exchange
believes that any incremental complexity the LRPs would have added to
the operation of the Plan would have been outweighed substantially by
their proven effectiveness in minimizing rapid price movements that are
driven by erroneous orders.
Furthermore, the Exchange wishes to respectfully, but strenuously,
object not only to the substance of the Commission's decision to
effectively insist that the Exchange abandon LRPs, but also the policy
implications of the decision. From a policy perspective, the
Commission's required removal of LRPs would seem to embody an effort to
force markets ``into a single mold'' \7\ for purposes of addressing
extraordinary volatility, and to obstruct the development of
``subsystems within the national market system,'' objectives which are
inconsistent with the 1975 Act Amendments.\8\
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\7\ See H.R. Rep. No. 94-123, at 51 (1975) (emphasis added)
(``The objective is to enhance competition and to allow economic
force, interacting within a fair regulatory field, to arrive at
appropriate variations of practices and services. Neither the
markets themselves nor the broker-dealer participant in these
markets should be forced into a single mold. Market centers should
compete and evolve according to their own natural genius and all
actions to compel uniformity must be measured and justified as
necessary to accomplish the salient purposes of the Securities
Exchange Act, assure the maintenance of fair and orderly markets and
to provide price protection for the orders of investors.'').
\8\ See S. Rep. No. 94-75 (1975). While there is no disputing
that Congress intended to grant broad and discretionary market
oversight powers to the Commission, it is also important to
recognize the intended limits of that discretion. The Senate
Committee Report sheds particular light on those limits with respect
to uniformity of structure: ``This is not to say that it is the goal
of the legislation to ignore or eliminate distinctions between
exchange markets and over-the-counter markets or other inherent
differences or variations in components of a national market system.
Some present distinctions may tend to disappear in a national market
system, but it is not the intention of the bill to force all markets
for all securities into a single mold. Therefore, in implementing
the bill's objectives, the SEC would have the power to classify
markets, firms, and securities in any manner it deems necessary or
appropriate in the public interest or for the protection of
investors and to facilitate the development of subsystems within the
national market system.'' See id. at 7 (emphasis added).

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[[Page 21459]]

Nevertheless, the Exchange proposes to phase out \9\ the LRP
functionality for securities as they are covered by the Plan in
coordination with the Plan's Phase I and Phase II implementation
timelines.\10\ LRPs will remain in place for any securities not covered
by the Plan.
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\9\ The Exchange would note that the suspension, rather than the
elimination thereof, of LRPs for the duration of the pilot period
would not be put before the Commission for consideration.
\10\ See, e.g., Securities Exchange Act Release No. 68785
(January 31, 2013), 78 FR 8646 (February 6, 2013) (SR-NYSEArca-2013-
06).
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As such, the Exchange proposes to add rule language that, beginning
on April 8, 2013, LRPs will no longer be in effect for Tier 1 NMS
Stocks, and on the earlier of August 1, 2013 or such date as Phase II
of the Limit Up--Limit Down Plan is implemented, LRPs will no longer be
in effect for all NMS Stocks. In order to accommodate the phasing out
process, prior to the implementation of Phase II of the Plan, the
Exchange will file a separate rule proposal deleting the references to
LRP functionality in NYSE Rules 60, 79A, 104, 128, and 1000. The
Exchange will apprise members and member organizations of the dates of
the discontinuation of the LRP functionality via an Information
Memorandum. The Exchange plans to revisit the merits of discontinuing
the LRP functionality after the initial Plan pilot period has ended and
may file to reincorporate the LRP functionality at that time as well.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the requirements of Section 6(b) of the Act,\11\ in general, and
Section 6(b)(5) of the Act,\12\ 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. However, the Exchange is discontinuing the LRP
functionality and deleting corresponding rule references to implement
changes that the Commission has requested and expects as reflected in
the LULD Release. Moreover, the related Information Memorandum to
members and member organizations would provide advance notice to NYSE
members and member organizations that the Exchange would cease offering
the LRP functionality in furtherance of the Commission's expectations.
---------------------------------------------------------------------------

\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will
impose a burden on competition because the Exchange is discontinuing
the LRP functionality to fulfill the Commission's expectations. In this
respect, the Exchange notes that because Commission expects all
exchanges to discontinue their respective volatility mechanisms, there
should be no burden on competition because all exchanges as well as
their members and issuers would be similarly situated.

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

No written comments were solicited or received with respect to the
proposed rule change.

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

The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\16\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to designate an operative date of April 8, 2013. The
Commission believes that waiving the operative delay and designating
April 8, 2013 as the operative date of the proposed rule change is
consistent with the protection of investors and the public interest
because such waiver would allow the proposed rule change to be
operative on the initial date of Plan operations. Accordingly, the
Commission hereby grants the Exchange's request and designates an
operative date of April 8, 2013.\17\
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\15\ 17 CFR 240.19b-4(f)(6).
\16\ 17 CFR 240.19b-4(f)(6)(iii).
\17\ For purposes only of waiving the operative delay, the
Commission has 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 such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml ); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSE-2013-27 on the subject line.

Paper Comments

Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2013-27. 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

[[Page 21460]]

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 such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make publicly available. All
submissions should refer to File Number SR-NYSE-2013-27 and should be
submitted on or before May 1, 2013.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08321 Filed 4-9-13; 8:45 am]
BILLING CODE 8011-01-P

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