69484 Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 

14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release Nos. 62945 

(September 20, 2010), 75 FR 58460 (September 24, 

2010) (SR–BATS–2010–025); 62954 (September 20, 

2010), 75 FR 59305 (September 27, 2010) (SR–BX– 

2010–66); 62951 (September 20, 2010), 75 FR 59309 

(September 27, 2010) (SR–CBOE–2010–087); 62949 

(September 20, 2010), 75 FR 59315 (September 27, 

2010) (SR–CHX–2010–22); 62953 (September 20, 

2010), 75 FR 59300 (September 27, 2010) (SR– 

FINRA–2010–049); 62950 (September 20, 2010), 75 

FR 59311 (September 27, 2010) (SR–NASDAQ– 

2010–115); 62952 (September 20, 2010), 75 FR 

59316 (September 27, 2010) (SR–NSX–2010–12); 

62948 (September 20, 2010), 75 FR 58455 

(September 24, 2010) (SR–NYSE–2010–69); 62947 

(September 20, 2010), 75 FR 58453 (September 24, 

2010) (SR–NYSEAmex–2010–96); 62946 

(September 20, 2010), 75 FR 58462 (September 24, 

2010) (SR–NYSEArca–2010–83). 

4The SROs filed their respective Amendments 

No. 1 on November 4, 2010. Each of the 

Amendments No. 1 modifies the proposals so that 

a market maker is not expected to enter a quote 

based on the prior day’s last sale at the 

commencement of regular trading hours if there is 

no National Best Bid (‘‘NBB’’) or National Best Offer 

(‘‘NBO’’). As amended, in such a circumstance, the 

quoting obligation would commence as soon as 

there has been a regular-way transaction on the 

primary listing market in the security, as reported 

by the responsible single plan processor. In 

addition, the Amendment modifies the proposals so 

that a market maker’s quoting obligations shall be 

suspended during a trading halt, suspension or 

pause, and shall not re-commence until after the 

first regular-way transaction on the primary listing 

market following that halt, suspension or pause, as 

reported by the responsible single plan processor. 

Finally, so that the markets may coordinate 

implementation upon approval of the proposed rule 

changes, in Amendment No. 1 the SROs stated that 

the planned implementation date for the proposed 

rule changes would be December 6, 2010. 

5The events of May 6 are described more fully 

in the report of the staffs of the Commodity Futures 

Trading Commission (‘‘CFTC’’) and the Commission, 

titled Report of the Staffs of the CFTC and SEC to 

the Joint Advisory Committee on Emerging 

Regulatory Issues, ‘‘Findings Regarding the Market 

Events of May 6, 2010,’’ dated September 30, 2010 

(‘‘May 6 Staff Report’’). 

6See supra note 3. 

7As noted, Amendment No. 1 modifies the 

proposals so that the quoting obligation would 

commence as soon as there has been a regular-way 

transaction on the primary listing market in the 

security, as reported by the responsible single plan 

processor. The Amendment also modifies that the 

market maker’s quoting obligations shall be 

suspended during a trading halt, suspension or 

pause, and shall not re-commence until the firstregular way print on the primary listing market 

following that halt, suspension or pause, as 

reported by the responsible single plan processor. 

See supra note 4. 

8See 17 CFR 242.600 (defining NMS stock as ‘‘any 

NMS security other than an option’’ and NMS 

security as ‘‘any security or class of securities for 

which transaction reports are collected, processed, 

and made available pursuant to an effective 

transaction reporting plan, or an effective national 

market system plan for reporting transactions in 

listed options’’). 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

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

also will be available for inspection and 

copying at the principal office of 

FINRA. 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–FINRA–2010–053 and 

should be submitted on or before 

December 3, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–28419 Filed 11–10–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63255; File Nos. SR–BATS– 

2010–025; SR–BX–2010–66; SR–CBOE– 

2010–087; SR–CHX–2010–22; SR–FINRA– 

2010–049; SR–NASDAQ–2010–115; SR– 

NSX–2010–12; SR–NYSE–2010–69; SR– 

NYSEAmex–2010–96; SR–NYSEArca–2010– 

83] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; NASDAQ OMX BX, 

Inc.; Chicago Board Options 

Exchange, Incorporated; The Chicago 

Stock Exchange, Inc.; Financial 

Industry Regulatory Authority, Inc.; 

The NASDAQ Stock Market LLC; 

National Stock Exchange, Inc.; New 

York Stock Exchange LLC; NYSE 

Amex LLC; NYSE Arca, Inc.; Order 

Granting Accelerated Approval to 

Proposed Rule Changes, as Modified 

by Amendment No. 1, To Enhance the 

Quotation Standards for Market 

Makers 

November 5, 2010. 

I. Introduction 

On September 17, 2010, each of BATS 

Exchange, Inc. (‘‘BATS’’), NASDAQ 

OMX BX, Inc. (‘‘BX’’), Chicago Board 

Options Exchange, Incorporated 

(‘‘CBOE’’), The Chicago Stock Exchange, 

Inc. (‘‘CHX’’), The NASDAQ Stock 

Market LLC (‘‘Nasdaq’’), New York Stock 

Exchange LLC (‘‘NYSE’’), National Stock 

Exchange, Inc. (‘‘NSX’’); NYSE Amex 

LLC (‘‘NYSE Amex’’); NYSE Arca, Inc. 

(‘‘NYSE Arca’’), and the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA,’’ and together with BATS, BX, 

CBOE, CHX, Nasdaq, NYSE, NSX, NYSE 

Amex and NYSE Arca, the ‘‘SROs’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Act’’), and Rule 

19b-4 thereunder,2 proposed rule 

changes to amend certain of their 

respective rules to enhance minimum 

quoting standards for market makers 

registered with the exchange or, in the 

case of FINRA, market makers that 

quote on the Alternative Display 

Facility (‘‘ADF’’). The purpose of these 

rule changes is to require equity market 

makers to post continuous two-sided 

quotations within a designated 

percentage of the inside market to 

eliminate market maker ‘‘stub quotes,’’ 

that are so far away from the prevailing 

market that they are not intended to be 

executed (such as an order to buy at a 

penny or sell at $100,000). 

The proposed rule changes were 

published for comment in the Federal 

Register on September 24 and 

September 27, 2010.3 In addition, each 

of the SROs filed an Amendment No. 1 

to their respective proposed rule 

changes.4 The Commission received no 

comments on the proposed rule 

changes. This order approves the 

proposed rule changes on an accelerated 

basis. 

II. Description of the Proposals 

On May 6, 2010, the U.S. equity 

markets experienced a severe 

disruption.5 Among other things, the 

prices of a large number of individual 

securities suddenly declined by 

significant amounts in a very short time 

period, before suddenly reversing to 

prices consistent with their pre-decline 

levels. This severe price volatility led to 

a large number of trades being executed 

at temporarily depressed prices, 

including many that were more than 

60% away from pre-decline prices and 

subsequently broken. 

As noted in the May 6 Staff Report, 

executions against stub quotes 

represented a significant proportion of 

broken trades on May 6. To address this 

aspect of the events of May 6, in 

coordination with the Commission, the 

SROs filed proposals to address stub 

quotes by introducing minimum quoting 

standards for market makers.6 The 

proposals require market makers to 

maintain continuous two-sided 

quotations throughout the trading day 7

that are within a certain percentage 

band of the national best bid and offer 

(‘‘NBBO’’). These requirements apply to 

all NMS stocks 8 during normal market 

hours. For stocks subject to the 

individual stock circuit breaker pilot 

program (i.e., stocks that are included in 

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Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 69485 

9See Securities Exchange Act Release Nos. 62283 

(September 10, 2010), 75 FR 56608 (September 16, 

2010); 62884 (September 10, 2010), 75 FR 56618 

(September 16, 2010). 

10NYSE Arca has represented that it will 

separately file a proposed rule change to delete the 

text of Rule 7.31(k)(1)(B)(1), which states that a ‘‘Q 

Order entered with reserve size * * * will 

automatically repost with the original display size 

and $10 below the original bid or $10 above the 

original offer, but never below $0.01,’’ and to 

remove the accompanying Q Order functionality. 

The proposed date of implementation for this 

change will be December 6, consistent with the 

implementation date for the new market maker 

quoting requirements. See e-mail from Clare F. 

Saperstein, Vice President, Regulatory Policy and 

Management, NYSE Regulation, Inc., to David Liu, 

Senior Special Counsel, and Andrew Madar, 

Special Counsel, Commission, dated November 5, 

2010. 

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

12 In approving the proposed rule change, the 

Commission notes that it has considered the 

proposed rules’ impact on efficiency, competition, 

and capital formation. 15 U.S.C. 78c(f). 

13 15 U.S.C. 78o–3(b)(6). 

14 15 U.S.C. 78k–1(a)(1). 

the S&P 500, stocks that are included in 

the Russell 1000, and certain exchangetraded products),9 market makers must 

enter quotes that are not more than 8% 

away from the NBBO. A quote that is 

entered at or within 8% away from the 

NBBO is allowed to drift a certain 

additional amount away from the NBBO 

before it must be adjusted by the market 

maker. However, if the NBBO moves to 

a point such that the quote is 9.5% away 

from the NBBO, that quote must be 

adjusted so that it is no further than 8% 

away from the NBBO. During times in 

which a single-stock circuit breaker is 

not applicable (i.e., before 9:45 a.m. and 

after 3:35 p.m.), market makers for such 

securities must maintain a quote no 

further than 20% away from the NBBO. 

Similar to the requirements when the 

single-stock circuit breakers are in 

effect, a market maker’s quote may drift 

an additional 1.5% away from the 

NBBO without adjustment (i.e., until it 

is 21.5% away from the NBBO), at 

which point it would need to be 

adjusted to a quote no further than 20% 

away from the NBBO. In the absence of 

an NBBO, the same percentages apply, 

but the market maker must use the 

consolidated last sale instead of the 

NBBO. 

For securities that are not subject to 

the single-stock circuit breakers, market 

makers must maintain quotes that are no 

more than 30% away from the NBBO. 

Like securities subject to the singlestock circuit breakers, if the NBBO 

moves to a point such that the quote is 

31.5% away from the NBBO, the quote 

must be adjusted to a quote no further 

than 30% away from the NBBO. 

Nothing in the proposals precludes a 

market maker from voluntarily quoting 

at price levels that are closer to the 

NBBO than required under the 

proposals. 

The planned implementation date for 

the proposed rule changes is December 

6, 2010. 

As part of their rule proposals, certain 

SROs proposed additional amendments 

to conform their rules to those of the 

other SROs with respect to these market 

maker obligations. For example, FINRA 

proposed to amend its rule to explicitly 

state that the duties of a market maker 

include assisting in the maintenance of 

fair and orderly markets, while NYSE 

and NYSE Amex proposed to amend 

their respective rules to explicitly state 

that the duties of a market maker 

include maintaining a continuous twosided quote with a displayed size of at 

least one round lot. 

In addition, BATS, BX and Nasdaq 

proposed functionalities to 

automatically update market makers’ 

quotes on their exchanges. Under the 

BATS proposal, such functionality 

would be optional. Upon the request of 

a market maker, the BATS system 

would automatically enter and adjust 

quotes in accordance with the proposed 

quotation requirements. If a market 

maker cancelled the quotations entered 

by BATS through this functionality, the 

market maker would remain responsible 

for complying with the minimum 

quotation requirements imposed by the 

new rule. 

For both BX and Nasdaq, the 

exchange would automatically create a 

quote to comply with the proposed 

quoting requirements for each issue in 

which a market maker is registered. BX 

and Nasdaq would adjust one of these 

automated quotations when it drifts to 

within 4% of the NBBO (or, if greater, 

one-quarter of the applicable percentage 

necessary to trigger an individual stock 

trading pause), or if the quote drifts to 

within the applicable percentage 

necessary to trigger an individual stock 

trading pause less 0.5%. If this occurs, 

BX or Nasdaq would adjust and display 

a quotation for the market maker at the 

appropriate percentage away from the 

NBBO. Other quotations directly 

entered by market makers would be 

allowed to move freely towards the 

NBBO for potential execution. If a 

quotation automatically entered by BX 

or Nasdaq on behalf of a market maker 

is executed, BX or Nasdaq would refresh 

the market maker’s quote on the 

executed side of the market at the 

applicable percentage away from the 

NBBO or, if there is no NBBO, the last 

reported sale. 

Finally, NYSE Arca proposed making 

conforming changes to its Q Order type. 

Specifically, NYSE Arca proposed to 

eliminate the ‘‘standard Q,’’ an order that 

has a price of $0.01 for the bid and two 

times the previous day’s close for the 

offer, as an available order type. NYSE 

Arca also proposed to add to its Rule 

7.31(k) that, to the extent that other 

types of Q Order functionality remain, 

nothing in the rule relating to Q Orders 

would be construed to relieve market 

makers of their obligations under the 

revised NYSE Arca Rule 7.23, which 

includes the proposed market maker 

quoting obligations.10

III. Commission Findings 

The Commission finds that the 

proposed rule changes implementing 

enhanced market maker quotation 

standards are consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

national securities exchanges and 

national securities associations. In 

particular, with respect to the proposals 

submitted by the national securities 

exchanges, the Commission finds that 

the proposals are consistent with 

Section 6(b)(5) of the Act,11 which, 

among other things, requires that the 

rules of national securities exchanges be 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, 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.12

Similarly, the Commission finds that the 

FINRA proposal is consistent with 

Section 15A(b)(6) of the Act,13 which 

requires, among other things, that 

FINRA rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. The Commission also 

believes that the proposals are 

consistent with Section 11A(a)(1) of the 

Act 14 in that they seek to assure fair 

competition among brokers and dealers 

and among exchange markets. 

By requiring market makers to 

maintain quotes that are priced within 

a broad range around the NBBO, the 

proposed rules should help assure that 

quotations submitted by market makers 

to an exchange or FINRA’s ADF, and 

displayed to market participants, bear 

some relationship to the prevailing 

market price, and thus should promote 

fair and orderly markets and the 

protection of investors. In addition, by 

precluding market makers from 

submitting ‘‘stub’’ quotes that are so far 

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69486 Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 

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

16 15 U.S.C. 78s(b)(2). 

17 15 U.S.C. 78s(b)(2). 18 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

away from the prevailing market price 

that they are not intended to be 

executed, the proposed rules should 

reduce the risk that trades will occur at 

irrational prices. As noted above, a large 

number of trades were executed at 

irrational prices on May 6, 2010 and 

were ultimately broken. In this respect, 

the proposals also should promote the 

goals of investor protection and fair and 

orderly markets. Finally, because the 

SROs are proposing uniform rules with 

respect to these market maker quoting 

obligations, the proposed rule changes 

as a whole will assure these baseline 

standards are applied throughout the 

equity markets. 

The Commission also finds that the 

functionality proposed by BATS, BX 

and Nasdaq is consistent with Section 

6(b)(5) of the Act,15 which, among other 

things, requires that the rules of national 

securities exchanges be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, 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. The proposed 

functionality should assist market 

makers on BATS, BX and Nasdaq in 

maintaining continuous, two-sided limit 

orders within the prescribed limits in 

the securities in which they are 

registered to satisfy their new quoting 

obligations. 

The Commission also finds good 

cause, pursuant to Section 19(b)(2) of 

the Act,16 for approving the proposed 

Amendments No. 1 on an accelerated 

basis. These amendments reflect the 

concern that the proposed market maker 

quoting obligations should not apply 

during times when market makers 

should be permitted to absorb material 

information affecting a security for 

which they are registered as a market 

maker, whether before or during the 

trading day, i.e., until there has been a 

regular-way transaction on a security’s 

primary listing market or during a 

trading halt. Approving these 

amendments on an accelerated basis 

would allow these provisions to be 

effective as of the implementation date 

of the new market maker requirements. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,17 that the 

proposed rule changes (SR–BATS– 

2010–025; SR–BX–2010–66; SR–CBOE– 

2010–087; SR–CHX–2010–22; SR– 

FINRA–2010–049; NASDAQ–2010–115; 

SR–NSX–2010–12; SR–NYSE–2010–69; 

SR–NYSEAmex–2010–96; SR– 

NYSEArca–2010–83), as modified by 

Amendment No. 1, be, and hereby are, 

approved on an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–28443 Filed 11–10–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63208A; File No. SR–DTC– 

2010–13] 

Self-Regulatory Organizations; The 

Depository Trust Company; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Implement a 

Disincentive Fee Associated With the 

Deposit Automation Management 

System 

November 5, 2010. 

Correction 

In FR Document No. 2010–27856 

beginning on page 68013 for Thursday, 

November 4, 2010, the paragraph under 

which The Depository Trust Company 

(‘‘DTC’’) filed the proposed rule change 

was incorrectly identified as section 

19(b)(3)(A)(iii) of the Securities 

Exchange Act of 1934 (‘‘Exchange Act’’) 

and Rule 19b–4(f)(3) thereunder. The 

correct paragraph under which DTC 

filed the proposed rule change is section 

19(b)(3)(A)(ii) of the Exchange Act and 

Rule 19b–4(f)(2). 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–28451 Filed 11–10–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63252; File No. SR–Phlx– 

2010–150] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Amendments to the Fee Schedule 

November 5, 2010. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on October 

29, 2010, NASDAQ OMX PHLX LLC 

(‘‘Phlx’’ or the ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

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 to amend its Fee 

Schedule to: (i) Delete a symbol from 

the list of ‘‘Select Symbols’’ included in 

the ‘‘Rebates and Fees for Adding and 

Removing Liquidity in Select Symbols’’ 

section of the Fee Schedule; (ii) change 

the symbol of a Select Symbol to reflect 

a recent corporate action; (iii) add the 

KBW Bank Index (‘‘BKX’’) to the list of 

symbols in the Equity Options Fees and 

assess an Options Surcharge on BKX; 

(iv) delete the Cancellation Fee for 

electronically delivered customer orders 

from Section I of the Fee Schedule; and 

(v) amend the fees for electronic 

auctions and opening process. 

While changes to the Exchange’s Fee 

Schedule pursuant to this proposal are 

effective upon filing, the Exchange has 

designated this proposal to be effective 

for trades settling on or after November 

1, 2010. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://nasdaqtrader.com/ 

micro.aspx?id=PHLXfilings, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

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