Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Deleting NYSE Rule 476(a)(8), Which Addresses Wash Sales, in Order To Harmonize the Exchange's Rules With the Rules of the Financial Industry Regulatory Authority, 25327-25329 [2013-10051]
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Federal Register / Vol. 78, No. 83 / Tuesday, April 30, 2013 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69441; File No. SR–NYSE–
2013–29]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change
Deleting NYSE Rule 476(a)(8), Which
Addresses Wash Sales, in Order To
Harmonize the Exchange’s Rules With
the Rules of the Financial Industry
Regulatory Authority
April 24, 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 10,
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to delete
NYSE Rule 476(a)(8), which addresses
wash sales, in order to harmonize the
Exchange’s rules with the rules of the
Financial Industry Regulatory Authority
(‘‘FINRA’’). 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.
pmangrum on DSK3VPTVN1PROD with NOTICES
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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13:22 Apr 29, 2013
Jkt 229001
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to delete
NYSE Rule 476(a)(8), which addresses
wash sales, in order to harmonize the
Exchange’s rules with the rules of
FINRA.
Background
On July 30, 2007, FINRA’s
predecessor, the National Association of
Securities Dealers, Inc. (‘‘NASD’’), and
NYSE Regulation, Inc. (‘‘NYSER’’)
consolidated their member firm
regulation operations into a combined
organization, FINRA. Pursuant to Rule
17d–2 under the Securities Exchange
Act of 1934, as amended (the ‘‘Act’’),
NYSE, NYSER and FINRA entered into
an agreement (the ‘‘Agreement’’) to
reduce regulatory duplication for their
members by allocating to FINRA certain
regulatory responsibilities for certain
NYSE rules and rule interpretations
(‘‘FINRA Incorporated NYSE Rules’’).
NYSE MKT LLC (‘‘NYSE MKT’’) became
a party to the Agreement effective
December 15, 2008.4
As part of its effort to reduce
regulatory duplication and relieve firms
that are members of FINRA, NYSE, and
NYSE MKT of conflicting or
unnecessary regulatory burdens, FINRA
is now engaged in the process of
reviewing and amending the NASD and
FINRA Incorporated NYSE Rules in
order to create a consolidated FINRA
rulebook.5
Proposed Rule Change
Current NYSE Rule 476(a)(8) prohibits
a member, member organization,
principal executive, approved person,
registered or non-registered employee of
a member or member organization, or
person otherwise subject to the
4 See Securities Exchange Act Release Nos. 56148
(July 26, 2007), 72 FR 42146 (August 1, 2007) (order
approving the Agreement); 56147 (July 26, 2007), 72
FR 42166 (August 1, 2007) (SR–NASD–2007–054)
(order approving the incorporation of certain NYSE
Rules as ‘‘Common Rules’’); and 60409 (July 30,
2009), 74 FR 39353 (August 6, 2009) (order
approving the amended and restated Agreement,
adding NYSE MKT LLC as a party). Paragraph 2(b)
of the Agreement sets forth procedures regarding
proposed changes by FINRA, NYSE or NYSE MKT
to the substance of any of the Common Rules.
5 FINRA’s rulebook currently has three sets of
rules: (1) NASD Rules, (2) FINRA Incorporated
NYSE Rules, and (3) consolidated FINRA Rules.
The FINRA Incorporated NYSE Rules apply only to
those members of FINRA that are also members of
the NYSE (‘‘Dual Members’’), while the
consolidated FINRA Rules apply to all FINRA
members. For more information about the FINRA
rulebook consolidation process, see FINRA
Information Notice, March 12, 2008.
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Sfmt 4703
25327
jurisdiction of the Exchange from (i)
making a fictitious bid, offer, or
transaction, (ii) giving an order for the
purchase or sale of securities the
execution of which would involve no
change of beneficial ownership, or (iii)
executing such an order with knowledge
of its character. In 2009, the Exchange
adopted NYSE Rules 6140(a) and (b),
which are substantially the same as
FINRA Rules 6140(a) and (b) 6 and also
address wash sale activity. NYSE Rule
6140(a) provides that no member or
member organization may execute or
cause to be executed or participate in an
account for which there are executed
purchases of any NMS stock as defined
in Rule 600(b)(47) of SEC Regulation
NMS (‘‘designated security’’) at
successively higher prices, or sales of
any such security at successively lower
prices, for the purpose of creating or
inducing a false, misleading or artificial
appearance of activity in such security
or for the purpose of unduly or
improperly influencing the market price
for such security or for the purpose of
establishing a price that does not reflect
the true state of the market in such
security. NYSE Rule 6140(b) prohibits a
member or member organization, for the
purpose of creating or inducing a false
or misleading appearance of activity in
a designated security or creating or
inducing a false or misleading
appearance with respect to the market
in such security, from:
(1) Executing any transaction in such
security which involves no change in
the beneficial ownership thereof;
(2) entering any order or orders for the
purchase of such security with the
knowledge that an order or orders of
substantially the same size, and at
substantially the same price, for the sale
of any such security, has been or will be
entered by or for the same or different
parties; or
(3) entering any order or orders for the
sale of any such security with the
knowledge that an order or orders of
substantially the same size, and at
substantially the same price, for the
purchase of such security, has been or
will be entered by or for the same or
different parties.
The Exchange notes that NYSE Rule
476(a)(8), which was adopted at a time
when the Exchange was operating in a
manual on-Floor trading environment,
has a different scienter standard than
NYSE Rule 6140 and FINRA Rule 6140.
These rules provide that a market
participant is prohibited from engaging
in wash sales that have the purpose of
6 See Securities Exchange Act Release No. 59965
(May 21, 2009), 74 FR 25783 (May 29, 2009) (SR–
NYSE–2009–25).
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Federal Register / Vol. 78, No. 83 / Tuesday, April 30, 2013 / Notices
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creating or inducing a false or
misleading appearance of activity in a
designated security. The ‘‘purpose’’ or
scienter requirement in NYSE Rule 6140
and FINRA Rule 6140 recognizes that in
today’s markets there can be certain
instances of trading activity that may
inadvertently and unknowingly result in
executions with no change in beneficial
ownership, for example trades entered
from an off-Floor participant that
experience latency issues over which
the participant has little or no control,
and that such conduct should not
always be treated as a wash sale
violation if the market participant did
not act with purpose.
On the other hand, NYSE Rule
476(a)(8) prohibits (i) making a fictitious
bid, offer, or transaction, (ii) giving an
order for the purchase or sale of
securities the execution of which would
involve no change of beneficial
ownership, or (iii) executing such an
order with knowledge of its character.
The second prong can be read as having
no scienter requirement.7 As such, the
example given above involving an offFloor market participant’s algorithmic
orders that inadvertently execute against
themselves due to latency issues could
be deemed a violation of the second
prong of NYSE Rule 476(a)(8). The
Exchange believes that such conduct
should not be treated as a wash sale
violation in all instances and therefore
proposes to eliminate NYSE Rule
476(a)(8) and instead utilize NYSE Rule
6140 for wash sale disciplinary actions.
The proposed rule change would
achieve a greater level of consistency
with FINRA’s rules and promote
harmonization, consistency,
transparency, and clarity with respect to
the Exchange’s rules and thereby
facilitate FINRA’s enforcement of them.8
The proposed rule change would not
result in any material diminution of the
Exchange’s enforcement authority or
any material change in surveillance of
potentially violative activity. The
Exchange may still bring a disciplinary
action in appropriate cases where a
market participant engages in a
significant amount of trades without
change of beneficial ownership, even if
such activity does not violate Rule
6140(b) per se because the participant
7 In at least one case, a hearing panel was divided
as to whether scienter is required in order to find
a violation of the second prong of NYSE Rule
476(a)(8) and adjudged the respondent not guilty.
See In the Matter of X, NYSE Hearing Panel
Decision 92–163 (Oct. 23, 1992).
8 The Exchange notes that it can bring
disciplinary actions under NYSE Rule 476(a)(8) for
conduct that occurred prior to the time the rule is
deleted. Thus, the proposed rule change would
have no impact on ongoing disciplinary actions
involving violations of NYSE Rule 476(a)(8).
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13:22 Apr 29, 2013
Jkt 229001
did not act with ‘‘purpose.’’ Such
conduct could also give rise to other
violations, such as a failure to supervise
under NYSE Rule 342, and the
Exchange has brought at least one such
case.9 Such conduct could also violate
just and equitable principles of trade or
otherwise constitute unethical activity
under NYSE Rule 2010.10
So that there is no change in the scope
of persons subject to disciplinary action
for wash sales, the Exchange proposes to
make a conforming amendment to NYSE
Rules 6140(a) and (b) to provide that the
rules apply not only to members and
member organizations but also to
principal executives, approved persons,
registered or non-registered employees
of a member or member organization or
persons otherwise subject to the
jurisdiction of the Exchange.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Act,11 in general, and furthers the
objectives of Section 6(b)(5),12 in
particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
9 See In the Matter of Goldman Sachs & Co., NYSE
Hearing Board Decision 12–3 (Apr. 4, 2012)
(between January 2009 and at least September 2011,
member firm violated NYSE Rule 342 in its capacity
as a NYSE Supplemental Liquidity Provider by
failing to maintain supervisory procedures that
were reasonably designed to detect and prevent
potentially violative wash trading activity).
10 See Calvin David Fox, 56 S.E.C. 1371, 1376
(2003) (‘‘With respect to a charge that conduct was
inconsistent with just and equitable principles of
trade, we have held that a self-regulatory
organization need not find that the respondent
acted with scienter, but must find that the
respondent acted in bad faith or unethically.’’).
NYSE Rule 2110 [sic] is a broad ethical concept that
covers all unethical business-related conduct. See
also In the Matter of Merrill Lynch, Pierce, Fenner
& Smith Incorporated, NYSE Hearing Board
Decision 10–13 (May 14, 2010) (firm violated just
and equitable principles of trade in that it
introduced prearranged or wash sales in the roundlot portion of a partial round lot order); In the
Matter of Robert Cutter Matlock, Jr., NYSE Hearing
Board Decision 06–19 (March 27, 2006) (Exchange
need not prove scienter for violations of just and
equitable principles of trade, but rather is required
to show the respondent acted in bad faith or
unethically); In the Matter of Mary Roy Wong,
NYSE Hearing Board Decision 06–187 (February 13,
2007) (Exchange need not prove scienter for
violations of just and equitable principles of trade,
but rather is required to show the respondent acted
in bad faith or unethically).
11 15 U.S.C. 78f(b).
12 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00077
Fmt 4703
Sfmt 4703
investors and the public interest.
Specifically, the Exchange believes that
the proposed rule change supports the
objectives of the Act by addressing an
inconsistency in the scienter
requirements between NYSE Rule
476(a)(8) on the one hand and NYSE
Rule 6140 and FINRA Rule 6140 on the
other. Eliminating this inconsistency
would provide member firms with
better notice of prohibited wash sale
activities and promote transparency and
clarity with respect to the Exchange’s
rules, thereby facilitating FINRA’s
enforcement of them. Moreover, the
proposed rule change would not result
in any material diminution of the
Exchange’s overall enforcement
authority or any material change in
surveillance of potentially problematic
trading activity. The Exchange may still
bring a disciplinary action in
appropriate cases where a market
participant engages in a significant
amount of trades without change of
beneficial ownership, even if such
activity does not violate Rule 6140(b)
per se because the participant did not
act with ‘‘purpose,’’ because such
conduct could violate supervision rules,
just and equitable principles of trade, or
other Exchange rules prohibiting
unethical conduct. As such, the
Exchange’s rules would continue to
protect investors and the public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is not intended to
address competitive issues but rather to
achieve greater consistency both within
NYSE’s rules and between NYSE and
FINRA rules.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
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Federal Register / Vol. 78, No. 83 / Tuesday, April 30, 2013 / Notices
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
[FR Doc. 2013–10051 Filed 4–29–13; 8:45 am]
IV. Solicitation of Comments
BILLING CODE 8011–01–P
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
No. SR–NYSE–2013–29 on the subject
line.
pmangrum on DSK3VPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File No.
SR–NYSE–2013–29. 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
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 such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File No. SR–NYSE–
2013–29 and should be submitted on or
before May 21, 2013.
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13:22 Apr 29, 2013
Jkt 229001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Elizabeth M. Murphy,
Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69444; File No. SR–
NASDAQ–2013–066]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Establish
the Limit Up/Limit Down Band Lookup
Add-On Service to TradeInfo and
Assess a Related Subscription Fee
April 24, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 15,
2013, The NASDAQ Stock Market LLC
(‘‘NASDAQ’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) a
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 comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASDAQ proposes to establish the
Limit Up/Limit Down Band Lookup
add-on service to TradeInfo and assess
a related subscription fee. The Exchange
is proposing to offer the proposed
service at no cost to members beginning
April 15, 2013 3 and for a monthly fee
of $200 per user beginning May 1, 2013.
The text of the proposed rule change
is below. Proposed new language is
italicized.
*
*
*
*
*
7015. Access Services
The following charges are assessed by
Nasdaq for connectivity to systems
operated by NASDAQ, including the
Nasdaq Market Center, the FINRA/
NASDAQ Trade Reporting Facility, and
FINRA’s OTCBB Service. The following
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 But see Securities Exchange Act Release No.
69445 (Aril 24, 2013) (proposed rule change
eliminating the free period for the Limit Up/Limit
Down Band Lookup add-on service; NASDAQ will
offer the service for $200 on May 1, 2013).
1 15
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
25329
fees are not applicable to the NASDAQ
Options Market LLC. For related options
fees for Access Services refer to Chapter
XV, Section 3 of the Options Rules.
(a)–(e) No change.
(f) TradeInfo
Members not subscribing to the
Nasdaq Workstation using TradeInfo
will be charged a fee of $95 per user per
month.
A member firm that has a TradeInfo
user subscription may subscribe to the
Limit Up/Limit Down Band Lookup addon service at no cost beginning April 15,
2013 and for a fee of $200 per user per
month beginning May 1, 2013. The Limit
Up/Limit Down Band Lookup add-on
service provides a subscribing member
firm with intraday and historical limit
up/limit down price band information
for individual securities that are subject
to limit up/limit down price bands.
(g)–(h) No change.
* Eligible for 25% discount under the
Qualified Market Maker Program during
a pilot period expiring on April 30,
2013.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NASDAQ 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
NASDAQ is proposing to offer
member firms a means to review the
Limit Up/Limit Down (‘‘LULD’’) price
bands for individual securities. The
National Market System Plan to Address
Extraordinary Market Volatility 4 (the
4 On April 5, 2011, the Exchange, together with
other self-regulatory organizations, filed with the
Commission a national market system plan to adopt
a market-wide limit up/limit down system to
reduce the negative impacts of sudden,
unanticipated price movements in NMS Stocks, like
that which was experienced on May 6, 2010.
Securities Exchange Act Release No. 64547 (May
25, 2011), 76 FR 31647 (June 1, 2011) (File No. 4–
631). The Plan was approved by the Commission on
a pilot basis on May 31, 2012. Securities Exchange
E:\FR\FM\30APN1.SGM
Continued
30APN1
]]>Agencies
[Federal Register Volume 78, Number 83 (Tuesday, April 30, 2013)]
[Notices]
[Pages 25327-25329]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-10051]
[[Page 25327]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69441; File No. SR-NYSE-2013-29]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change Deleting NYSE Rule 476(a)(8),
Which Addresses Wash Sales, in Order To Harmonize the Exchange's Rules
With the Rules of the Financial Industry Regulatory Authority
April 24, 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 10, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to delete NYSE Rule 476(a)(8), which
addresses wash sales, in order to harmonize the Exchange's rules with
the rules of the Financial Industry Regulatory Authority (``FINRA'').
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to delete NYSE Rule 476(a)(8), which
addresses wash sales, in order to harmonize the Exchange's rules with
the rules of FINRA.
Background
On July 30, 2007, FINRA's predecessor, the National Association of
Securities Dealers, Inc. (``NASD''), and NYSE Regulation, Inc.
(``NYSER'') consolidated their member firm regulation operations into a
combined organization, FINRA. Pursuant to Rule 17d-2 under the
Securities Exchange Act of 1934, as amended (the ``Act''), NYSE, NYSER
and FINRA entered into an agreement (the ``Agreement'') to reduce
regulatory duplication for their members by allocating to FINRA certain
regulatory responsibilities for certain NYSE rules and rule
interpretations (``FINRA Incorporated NYSE Rules''). NYSE MKT LLC
(``NYSE MKT'') became a party to the Agreement effective December 15,
2008.\4\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release Nos. 56148 (July 26,
2007), 72 FR 42146 (August 1, 2007) (order approving the Agreement);
56147 (July 26, 2007), 72 FR 42166 (August 1, 2007) (SR-NASD-2007-
054) (order approving the incorporation of certain NYSE Rules as
``Common Rules''); and 60409 (July 30, 2009), 74 FR 39353 (August 6,
2009) (order approving the amended and restated Agreement, adding
NYSE MKT LLC as a party). Paragraph 2(b) of the Agreement sets forth
procedures regarding proposed changes by FINRA, NYSE or NYSE MKT to
the substance of any of the Common Rules.
---------------------------------------------------------------------------
As part of its effort to reduce regulatory duplication and relieve
firms that are members of FINRA, NYSE, and NYSE MKT of conflicting or
unnecessary regulatory burdens, FINRA is now engaged in the process of
reviewing and amending the NASD and FINRA Incorporated NYSE Rules in
order to create a consolidated FINRA rulebook.\5\
---------------------------------------------------------------------------
\5\ FINRA's rulebook currently has three sets of rules: (1) NASD
Rules, (2) FINRA Incorporated NYSE Rules, and (3) consolidated FINRA
Rules. The FINRA Incorporated NYSE Rules apply only to those members
of FINRA that are also members of the NYSE (``Dual Members''), while
the consolidated FINRA Rules apply to all FINRA members. For more
information about the FINRA rulebook consolidation process, see
FINRA Information Notice, March 12, 2008.
---------------------------------------------------------------------------
Proposed Rule Change
Current NYSE Rule 476(a)(8) prohibits a member, member
organization, principal executive, approved person, registered or non-
registered employee of a member or member organization, or person
otherwise subject to the jurisdiction of the Exchange from (i) making a
fictitious bid, offer, or transaction, (ii) giving an order for the
purchase or sale of securities the execution of which would involve no
change of beneficial ownership, or (iii) executing such an order with
knowledge of its character. In 2009, the Exchange adopted NYSE Rules
6140(a) and (b), which are substantially the same as FINRA Rules
6140(a) and (b) \6\ and also address wash sale activity. NYSE Rule
6140(a) provides that no member or member organization may execute or
cause to be executed or participate in an account for which there are
executed purchases of any NMS stock as defined in Rule 600(b)(47) of
SEC Regulation NMS (``designated security'') at successively higher
prices, or sales of any such security at successively lower prices, for
the purpose of creating or inducing a false, misleading or artificial
appearance of activity in such security or for the purpose of unduly or
improperly influencing the market price for such security or for the
purpose of establishing a price that does not reflect the true state of
the market in such security. NYSE Rule 6140(b) prohibits a member or
member organization, for the purpose of creating or inducing a false or
misleading appearance of activity in a designated security or creating
or inducing a false or misleading appearance with respect to the market
in such security, from:
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\6\ See Securities Exchange Act Release No. 59965 (May 21,
2009), 74 FR 25783 (May 29, 2009) (SR-NYSE-2009-25).
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(1) Executing any transaction in such security which involves no
change in the beneficial ownership thereof;
(2) entering any order or orders for the purchase of such security
with the knowledge that an order or orders of substantially the same
size, and at substantially the same price, for the sale of any such
security, has been or will be entered by or for the same or different
parties; or
(3) entering any order or orders for the sale of any such security
with the knowledge that an order or orders of substantially the same
size, and at substantially the same price, for the purchase of such
security, has been or will be entered by or for the same or different
parties.
The Exchange notes that NYSE Rule 476(a)(8), which was adopted at a
time when the Exchange was operating in a manual on-Floor trading
environment, has a different scienter standard than NYSE Rule 6140 and
FINRA Rule 6140. These rules provide that a market participant is
prohibited from engaging in wash sales that have the purpose of
[[Page 25328]]
creating or inducing a false or misleading appearance of activity in a
designated security. The ``purpose'' or scienter requirement in NYSE
Rule 6140 and FINRA Rule 6140 recognizes that in today's markets there
can be certain instances of trading activity that may inadvertently and
unknowingly result in executions with no change in beneficial
ownership, for example trades entered from an off-Floor participant
that experience latency issues over which the participant has little or
no control, and that such conduct should not always be treated as a
wash sale violation if the market participant did not act with purpose.
On the other hand, NYSE Rule 476(a)(8) prohibits (i) making a
fictitious bid, offer, or transaction, (ii) giving an order for the
purchase or sale of securities the execution of which would involve no
change of beneficial ownership, or (iii) executing such an order with
knowledge of its character. The second prong can be read as having no
scienter requirement.\7\ As such, the example given above involving an
off-Floor market participant's algorithmic orders that inadvertently
execute against themselves due to latency issues could be deemed a
violation of the second prong of NYSE Rule 476(a)(8). The Exchange
believes that such conduct should not be treated as a wash sale
violation in all instances and therefore proposes to eliminate NYSE
Rule 476(a)(8) and instead utilize NYSE Rule 6140 for wash sale
disciplinary actions. The proposed rule change would achieve a greater
level of consistency with FINRA's rules and promote harmonization,
consistency, transparency, and clarity with respect to the Exchange's
rules and thereby facilitate FINRA's enforcement of them.\8\
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\7\ In at least one case, a hearing panel was divided as to
whether scienter is required in order to find a violation of the
second prong of NYSE Rule 476(a)(8) and adjudged the respondent not
guilty. See In the Matter of X, NYSE Hearing Panel Decision 92-163
(Oct. 23, 1992).
\8\ The Exchange notes that it can bring disciplinary actions
under NYSE Rule 476(a)(8) for conduct that occurred prior to the
time the rule is deleted. Thus, the proposed rule change would have
no impact on ongoing disciplinary actions involving violations of
NYSE Rule 476(a)(8).
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The proposed rule change would not result in any material
diminution of the Exchange's enforcement authority or any material
change in surveillance of potentially violative activity. The Exchange
may still bring a disciplinary action in appropriate cases where a
market participant engages in a significant amount of trades without
change of beneficial ownership, even if such activity does not violate
Rule 6140(b) per se because the participant did not act with
``purpose.'' Such conduct could also give rise to other violations,
such as a failure to supervise under NYSE Rule 342, and the Exchange
has brought at least one such case.\9\ Such conduct could also violate
just and equitable principles of trade or otherwise constitute
unethical activity under NYSE Rule 2010.\10\
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\9\ See In the Matter of Goldman Sachs & Co., NYSE Hearing Board
Decision 12-3 (Apr. 4, 2012) (between January 2009 and at least
September 2011, member firm violated NYSE Rule 342 in its capacity
as a NYSE Supplemental Liquidity Provider by failing to maintain
supervisory procedures that were reasonably designed to detect and
prevent potentially violative wash trading activity).
\10\ See Calvin David Fox, 56 S.E.C. 1371, 1376 (2003) (``With
respect to a charge that conduct was inconsistent with just and
equitable principles of trade, we have held that a self-regulatory
organization need not find that the respondent acted with scienter,
but must find that the respondent acted in bad faith or
unethically.''). NYSE Rule 2110 [sic] is a broad ethical concept
that covers all unethical business-related conduct. See also In the
Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated, NYSE
Hearing Board Decision 10-13 (May 14, 2010) (firm violated just and
equitable principles of trade in that it introduced prearranged or
wash sales in the round-lot portion of a partial round lot order);
In the Matter of Robert Cutter Matlock, Jr., NYSE Hearing Board
Decision 06-19 (March 27, 2006) (Exchange need not prove scienter
for violations of just and equitable principles of trade, but rather
is required to show the respondent acted in bad faith or
unethically); In the Matter of Mary Roy Wong, NYSE Hearing Board
Decision 06-187 (February 13, 2007) (Exchange need not prove
scienter for violations of just and equitable principles of trade,
but rather is required to show the respondent acted in bad faith or
unethically).
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So that there is no change in the scope of persons subject to
disciplinary action for wash sales, the Exchange proposes to make a
conforming amendment to NYSE Rules 6140(a) and (b) to provide that the
rules apply not only to members and member organizations but also to
principal executives, approved persons, registered or non-registered
employees of a member or member organization or persons otherwise
subject to the jurisdiction of the Exchange.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\11\ in general, and furthers the objectives of Section
6(b)(5),\12\ in particular, in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. Specifically, the Exchange
believes that the proposed rule change supports the objectives of the
Act by addressing an inconsistency in the scienter requirements between
NYSE Rule 476(a)(8) on the one hand and NYSE Rule 6140 and FINRA Rule
6140 on the other. Eliminating this inconsistency would provide member
firms with better notice of prohibited wash sale activities and promote
transparency and clarity with respect to the Exchange's rules, thereby
facilitating FINRA's enforcement of them. Moreover, the proposed rule
change would not result in any material diminution of the Exchange's
overall enforcement authority or any material change in surveillance of
potentially problematic trading activity. The Exchange may still bring
a disciplinary action in appropriate cases where a market participant
engages in a significant amount of trades without change of beneficial
ownership, even if such activity does not violate Rule 6140(b) per se
because the participant did not act with ``purpose,'' because such
conduct could violate supervision rules, just and equitable principles
of trade, or other Exchange rules prohibiting unethical conduct. As
such, the Exchange's rules would continue to protect investors and the
public interest.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
not intended to address competitive issues but rather to achieve
greater consistency both within NYSE's rules and between NYSE and FINRA
rules.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
[[Page 25329]]
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File No. SR-NYSE-2013-29 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 No. SR-NYSE-2013-29. 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 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 such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File No. SR-NYSE-2013-29 and should be
submitted on or before May 21, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-10051 Filed 4-29-13; 8:45 am]
BILLING CODE 8011-01-P
