Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices 12155 

94 15 U.S.C. 78q–1(b)(3)(I). 

95 15 U.S.C. 78q–1(b)(3)(I). 

96See Securities and Exchange Act Release No. 

44301, 66 FR 28297 (May 11, 2001) (approving a 

‘‘two-pot’’ cross-margining proposal between FICC’s 

predecessor and CME). 

97 15 U.S.C. 78q–1(b)(3)(F). 

98Letter from Michael Bodson, Executive 

Managing Director, Fixed Income Clearing 

Corporation and Walt Lukken, Chief Executive 

Officer, New York Portfolio Clearing, LLC (February 

27, 2011). 

99 ‘‘Look-alike contracts’’ refers to contracts that 

have similar economic features but are traded 

separately on CME and NYSE Liffe. 

100 15 U.S.C. 78q–1. 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

information about the LLP agreements 

concerning the proposed crossmargining arrangements. 

The Commission believes FICC’s 

commitment to provide ongoing 

information with respect LLP 

agreements would help to evaluate its 

efforts to facilitate indirect access and 

would thereby help to ensure that the 

proposal would not impose any burden 

on competition not necessary and 

appropriate in furtherance of the 

purposes of the Exchange Act, 

consistent with Section 17A(b)(3)(I) of 

the Act.94 The Commission anticipates 

that this information will be primarily 

used for the limited purpose of 

identifying any instances in which there 

is potential non-compliance with the 

terms of this order or the 

representations made by FICC. 

The Commission has considered the 

concerns presented by commenters and 

has determined that the benefits of the 

proposal outweigh any anti-competitive 

effects of the proposal. The Commission 

believes that the proposal would not 

impose any burden on competition not 

necessary and appropriate in 

furtherance of the purposes of the 

Exchange Act consistent with Section 

17A(b)(3)(I) of the Act.95

C. Effect on Efficiency and Costs 

As previously discussed, both FICC 

and those commenting on the proposed 

rule change expect that the crossmargining proposal will reduce costs, 

including delivery costs, and increase 

cash flows through margin efficiencies. 

The Commission believes that the NYPC 

Arrangement has the potential to 

increase efficiencies by allowing 

clearing agencies to streamline the 

delivery process, employ common and 

coordinated risk management and 

margin methodologies, and lower costs 

for market participants. 

A ‘‘two-pot’’ arrangement allows for 

offsets and lowered margin based on 

correlations in a members’ cleared 

positions at different clearinghouses; 

however, there is not a unified 

arrangement for risk management or loss 

allocations.96 The ‘‘two-pot’’ crossmargining arrangements approved by 

the Commission in the past, including 

one between FICC and CME, have 

allowed clearinghouses to allow credit 

against the margin requirement for 

offsetting positions cleared at another 

clearinghouse, but each clearinghouse 

maintained and managed separate pools 

of collateral. The ‘‘one-pot’’ arrangement 

would offer greater margin reductions 

than a ‘‘two-pot’’ arrangement. 

As result of these benefits in 

facilitating a more accurate and costeffective system for settlement, the 

Commission believes that the proposal 

would promote the prompt and accurate 

clearance and settlement of securities 

transactions and help assure the 

safeguarding of securities and funds in 

a manner consistent with Section 

17A(b)(3)(F) of the Act.97

D. Additional Reporting 

As noted above, FICC has represented 

that it will provide certain information 

and reports to the Commission on an 

ongoing basis in order to facilitate 

ongoing monitoring of the crossmargining arrangement and thereby 

help ensure compliance with the 

standards in Section 17A of the Act.98

In particular, with respect to 

information pertaining to risk matters, 

the Commission believes that these 

reports would assist the Commission in 

its efforts to monitor risk management 

practices under the cross-margining 

arrangement by providing information 

to help confirm that the actual 

performance of the models and systems 

are consistent with those anticipated 

during tests prior to launch. 

Specifically, FICC has agreed to provide 

the following information upon the 

proposed rule change becoming 

effective: 

• For the first 250 trading days upon 

the proposed rule change becoming 

effective, FICC will provide the 

Commission staff with quarterly reports 

that itemize divergences between CME 

prices and NYSE Liffe prices for ‘‘lookalike contracts.’’ 99

• Semi-annually, FICC will provide 

the Commission staff with reports 

summarizing the sensitivity of the 

model used for the NYPC Agreement 

and the collected margin to the model’s 

assumptions and established 

parameters. 

• Quarterly, FICC will provide the 

Commission staff with detailed portfolio 

analyses of members participating in the 

NYPC Arrangement. 

• Monthly, FICC will provide the 

Commission staff with reports 

summarizing the details of: (1) Any 

instances in which the account of a 

member participating in the NYPC 

Agreement experienced a loss that 

exceeded its margin requirement and 

the magnitude of such loss; (2) FICC’s 

analysis of the sufficiency of NYPC’s 

guaranty fund in conjunction with 

NYPC; and (3) FICC’s analysis of daily 

correlations between the futures and 

cash products that are subject to the 

NYPC Arrangement. 

• FICC will provide the Commission 

staff with DTCC’s periodic default 

simulations that factor in members’ 

participation in the NYPC Agreement. 

• For 24 months upon the proposed 

rule change becoming effective, FICC 

will provide the Commission staff with 

information on a quarterly basis 

regarding potential LPPs, including 

progress on negotiations and 

discussions of agreements or potential 

agreements with potential LPPs. 

• FICC will provide the Commission 

all agreements entered into between 

NYPC and any LPPs, as well as all 

amendments to such agreements, 

including, but not limited to, those 

regarding changes in the fee 

arrangements. 

V. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and in 

particular Section 17A of the Act 100 and 

the rules and regulations thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act, that the 

proposed rule change (File No. SR– 

FICC–2010–09) be, and hereby is, 

approved. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–4836 Filed 3–3–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63969; File No. SR–BATS– 

2011–007] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change by BATS Exchange, Inc. 

to Adopt BATS Rule 11.21, entitled 

‘‘Input of Accurate Information’’ 

February 25, 2011. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2


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12156 Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices 

3 15 U.S.C. 78s(b)(3)(A). 

4 17 CFR 240.19b–4(f)(6)(iii). 

5BATS Rule 18.2(a)(6). 

6See Securities Exchange Act Release 59547 

(March 10, 2009), 74 FR 11386 (March 17, 2009). 

7 15 U.S.C. 78f(b). 

8 15 U.S.C. 78f(b)(5). 

9 15 U.S.C. 78s(b)(3)(A). 

10 17 CFR 240.19b–4(f)(6). 

notice is hereby given that on February 

18, 2011, BATS Exchange, Inc. 

(‘‘Exchange’’ or ‘‘BATS’’) 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 Exchange has 

designated this proposal as a ‘‘noncontroversial’’ proposed rule change 

pursuant to Section 19(b)(3)(A) of the 

Act 3 and Rule 19b–4(f)(6)(iii) 

thereunder,4 which renders it effective 

upon filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to adopt new 

BATS Rule 11.21 to require Members to 

identify each order accurately as a 

Principal, Agency, or Riskless Principal 

Order. 

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 Exchange proposes to add new 

BATS Rule 11.21 for the purpose of 

increasing transparency and to enhance 

the surveillance database and audit trail 

of transaction data used by the 

Exchange in surveillance of its market. 

The proposed rule change would 

require Members to identify the capacity 

of each order accurately as a Principal, 

Agency, or Riskless Principal Order. For 

purposes of surveillance, the Exchange 

currently identifies the capacity of each 

order as Principal, Agency, or Riskless 

Principal; however, several other 

capacities are accepted upon order 

entry, including no response, which are 

thereafter mapped to one of the abovelisted order capacities. By limiting the 

order capacity upon entry to Principal, 

Agency, or Riskless Principal and 

requiring Members to accurately submit 

an order capacity for each order, the 

Exchange will be able to more precisely 

identify the type of order received and 

more effectively surveil for abusive 

trading. 

BATS does not have a rule that makes 

an explicit statement regarding a 

Member’s obligation to input accurate 

information into the System. 

Notwithstanding, BATS believes that 

disciplinary cases against Members 

entering inaccurate or incomplete 

information may be brought 

appropriately under BATS Rule 3.1, 

which requires Members to observe high 

standards of commercial honor and just 

and equitable principles of trade. Rule 

3.1 protects the investing public and the 

securities industry from dishonest 

practices that are unfair to investors or 

hinder the functioning of a free and 

open market, even though those 

practices may not be illegal or violate a 

specific rule or regulation. Because of 

the regulatory importance of accurate 

information input in the System, BATS 

believes a rule that directly addresses 

Members’ obligation to provide accurate 

information is warranted. The proposed 

rule makes clear Members’ obligation to 

input accurate information into the 

System and that failure to do so would 

be considered a violation of BATS 

Rules. 

BATS notes that it already has a rule 

in place for its equity options platform 

(‘‘BATS Options’’) that requires members 

of BATS Options (‘‘Options Members’’) 

to ensure that accurate information is 

input into the System, a requirement 

that includes, but is not limited to, the 

capacity of the Options Member as it 

relates to the order.5 The Commission 

has also previously approved rules 

proposed by the Nasdaq Stock Market 

LLC (‘‘Nasdaq’’) that apply to Nasdaq 

options and equities platforms and 

require participants to ensure that 

accurate information is entered into 

Nasdaq’s system, including but not 

limited to the capacity of the 

participant.6 Thus, the proposed rule 

change would: (1) make BATS Rules 

regarding equity trading consistent with 

its rules regarding options trading; and 

(2) bring BATS Rules in line with those 

of other self-regulatory organizations. 

In order to allow Members sufficient 

time to review and complete any 

systems changes necessitated by this 

filing, the Exchange has proposed an 

operative date of April 4, 2011. 

2. Statutory Basis 

The rule change proposed in this 

submission 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.7

Specifically, for the reasons described 

above, the proposed change is 

consistent with Section 6(b)(5) of the 

Act,8 because 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 to protect investors and the 

public interest. Specifically, the changes 

proposed herein will serve to promote 

the accuracy of information input into 

the Exchange. Accurate information is 

necessary for the efficient and fair 

operation of the Exchange, and will 

assist the Exchange in surveilling the 

markets for fraudulent activity. 

(B) Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change imposes any 

burden on competition. 

(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. 

III. Date of Effectiveness of the 

Proposed Rule Changes and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 9 and Rule 19b–4(f)(6) 10

thereunder because the proposal does 

not: (i) Significantly affect the 

protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) by its 

terms, 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 


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Federal Register / Vol. 76, No. 43 / Friday, March 4, 2011 / Notices 12157 

11 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. 

12 15 U.S.C. 78s(b)(3)(C). 

13 17 CFR 200.30–3(a)(12). 

1 15 U.S.C.78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4 17 CFR 242.201. 

5See notes 23–31 infra and accompanying text. 

6See infra note 22 and accompanying text 

regarding ‘‘clearly erroneous’’ trades and proposed 

Rule 7.16(f)(iv)(A). The proposed rule amendment 

would, among other things, establish the duration 

of the Short Sale Price Test. See infra note 21 and 

accompanying text. 

protection of investors and the public 

interest.11

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.12

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 (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–BATS–2011–007 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–BATS–2011–007. This file 

number should be included on the 

subject line if e-mail 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 (http://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 website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the principal office of 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–BATS– 

2011–007 and should be submitted on 

or before March 25, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–4886 Filed 3–3–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63971; File No. SR– 

NYSEARCA–2011–05] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Amending NYSE Arca 

Equities Rule 7.16 (Short Sales) in 

Order To Implement the Provisions of 

Rule 201 of Regulation SHO Under the 

Securities Exchange Act of 1934 

February 25, 2011. 

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 February 

24, 2011, NYSE Arca, Inc. (the 

‘‘Exchange’’ or ‘‘NYSE Arca’’) 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 substantially prepared by the selfregulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

NYSE Arca Equities Rule 7.16 (Short 

Sales) in order to implement the 

provisions of Rule 201 of Regulation 

SHO (‘‘Rule 201’’) 4 under the Act, 

which, if triggered, imposes a restriction 

on the prices at which covered 

securities may be sold short (‘‘Short Sale 

Price Test’’). Among other things, Rule 

201 requires trading centers to establish, 

maintain, and enforce written policies 

and procedures reasonably designed to 

prevent the execution or display of a 

short sale order of a covered security at 

a price that is less than or equal to the 

current national best bid if the price of 

a covered security decreases by 10% or 

more from the covered security’s closing 

price as determined by the listing 

market for the covered security as of the 

end of regular trading hours on the prior 

day. The proposed rule amendment 

would establish procedures for the 

Exchange, as a listing market, to 

determine that a Short Sale Price Test 

has been triggered for a covered 

security. The proposed rule amendment 

would also establish the protocols for 

the handling of short sale orders by the 

Exchange, as a trading center, in the 

event the Short Sale Price Test is 

triggered, including establishing what 

types of short sale orders will be repriced to achieve a permitted price, in 

accordance with Rule 201, during the 

period in which a Short Sale Price Test 

is in effect (‘‘Short Sale Period’’).5

Amended Rule 7.16 would also 

establish Exchange procedures 

regarding the execution and display of 

permissible orders during the Short Sale 

Period, and the execution of orders 

marked ‘‘short exempt.’’ Finally, the 

proposed rule amendment would also 

establish Exchange procedures for 

addressing situations where the 

Exchange determines that the Short Sale 

Price Test for a covered security was 

triggered by a ‘‘clearly erroneous’’ 

execution as that term is defined in 

NYSE Arca Equities Rule 7.10.6

The Exchange also proposes to amend 

NYSE Arca Equities Rule 7.65, which 

applies to the Exchange’s Portfolio 

Crossing Service (‘‘PCS’’), to exempt PCS 

transactions from the short sale price 

test restrictions contained in NYSE Arca 

Equities Rule 7.16(f). PCS short sale 

transactions would, however, be subject 

to the order marking and securities 

lending provisions of Paragraphs (a)–(e) 

of NYSE Arca Equities Rule 7.16. The 

text of the proposed rule change is 

available at the Exchange, the 

Commission’s Public Reference Room, 

and http://www.nyse.com. 


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