Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 69481 

19 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Rule 12401 provides for a single, chair-qualified 

public arbitrator if the amount of the claim is not 

more than $100,000. It provides for a three 

arbitrator panel if the amount of a claim is more 

than $100,000, or is unspecified, or if the claim 

requests non-monetary damages. The parties, in 

claims of more than $25,000, but not more than 

$100,000, may agree in writing to have a three 

arbitrator panel. 

4Rule 12400(c) specifies the criteria for arbitrator 

inclusion on the chairperson roster. 

5Rule 12100(u) specifies the criteria FINRA uses 

to classify arbitrators as public. 

6Rule 12100(p) specifies the criteria FINRA uses 

to classify arbitrators as non-public. 

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–C2–2010–007 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 C2–2010–007. 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 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 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–C2– 

2010–007 and should be submitted on 

or before December 3, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–28418 Filed 11–10–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63250; File No. SR–FINRA– 

2010–053] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change Relating to 

Amendments to the Panel Composition 

Rule, and Related Rules, of the Code 

of Arbitration Procedure for Customer 

Disputes 

November 5, 2010. 

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 October 

25, 2010, the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I, II, and III below, which Items 

have been prepared by FINRA. 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 

FINRA is proposing to amend the 

panel composition rule, and related 

rules, of the Code of Arbitration 

Procedure for Customer Disputes 

(‘‘Customer Code’’), to provide 

customers with the option to choose an 

all public arbitration panel in all cases. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA 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, 

FINRA 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. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background 

Under FINRA Dispute Resolution 

rules, parties in arbitration participate 

in selecting the arbitrators who serve on 

their cases. For customer claims of more 

than $100,000, the Customer Code 

currently provides for a three arbitrator 

panel 3 comprised of a chair-qualified 

public arbitrator, 4 a public arbitrator, 5

and a non-public arbitrator.6 FINRA 

uses the computerized Neutral List 

Selection System (‘‘NLSS’’) to generate 

random lists of 10 arbitrators from each 

of these categories. The parties select 

their panel through a process of striking 

and ranking the arbitrators on the lists 

generated by NLSS. The Customer Code 

permits the parties to strike the names 

of up to four arbitrators from each list. 

The parties then rank the arbitrators 

remaining on the lists in order of 

preference. FINRA appoints the panel 

from among the names remaining on the 

lists that the parties return. 

FINRA is proposing to amend the 

Customer Code to provide customers 

with the option to choose between two 

panel selection methods—the current 

panel selection method, which would 

be labeled ‘‘Composition Rules for 

Majority Public Panel’’ (‘‘Majority Public 

Panel’’), and a new panel selection 

method, which would be labeled 

‘‘Composition Rules for Optional All 

Public Panel’’ (‘‘Optional All Public 

Panel’’). Under the proposed rule 

change, customers could choose the 

panel selection method; neither firms 

nor associated persons could choose the 

selection method. 

The Majority Public Panel option 

would continue to provide for a panel 

of one chair-qualified public arbitrator, 

one public arbitrator, and one nonpublic arbitrator, and would retain the 

current limit of four strikes for each 

arbitrator list. The new Optional All 

Public Panel provision, if chosen by the 

customer, would allow parties to select 

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69482 Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 

7Rule 12402 provides that a single arbitrator 

panel will consist of a chair-qualified public 

arbitrator, and that a three arbitrator panel will 

consist of a chair-qualified public arbitrator, a 

public arbitrator, and a non-public arbitrator. 

8Rule 12403 provides that if a panel consists of 

one arbitrator, NLSS will generate a list of 10 chairqualified public arbitrators. If a panel consists of 

three arbitrators, NLSS will generate a list of 10 

chair-qualified public arbitrators, 10 public 

arbitrators, and 10 non-public arbitrators. Under the 

rule, NLSS excludes arbitrators from the list based 

on current known conflicts of interest identified in 

NLSS. The rule also details how NLSS generates the 

lists, and how FINRA sends lists to the parties and 

handles requests for additional information about 

arbitrators. 

9Rule 12404 states that parties may strike up to 

four arbitrators from each list, leaving at least six 

arbitrator names remaining. It also explains the 

process for ranking arbitrator preferences and 

returning the lists to FINRA. 

10Rule 12405 explains how FINRA prepares 

combined ranked lists of arbitrators based on the 

parties’ numerical rankings. 

11Rule 12406 explains that FINRA appoints the 

highest ranked available arbitrator from each of the 

combined lists and describes FINRA’s procedures 

for appointing an arbitrator when the number of 

arbitrators available to serve from a combined list 

is not sufficient to fill the panel. The rule also 

provides that appointment occurs when FINRA 

sends notice to the parties of the names of the 

arbitrators on the panel and that arbitrators must 

execute FINRA’s arbitrator oath or affirmation 

before making any decision as an arbitrator or 

attending a hearing. 

12Rule 12411 provides that if FINRA removes an 

arbitrator, or an arbitrator becomes otherwise 

unable or unwilling to serve, FINRA appoints as a 

replacement arbitrator the arbitrator who is the 

most highly ranked available arbitrator from the 

applicable combined list. It also states the 

procedure for replacing an arbitrator if there aren’t 

any arbitrators left on a combined list. 

an all public arbitration panel. Under 

this new provision, FINRA would send 

the parties the same three lists of 

randomly generated arbitrators that they 

would have received under the Majority 

Public Panel option, but FINRA would 

allow each party to strike any or all of 

the arbitrators on the non-public 

arbitrator list. If individually, or 

collectively, the parties struck all of the 

non-public arbitrators, FINRA would 

complete the panel by appointing a 

public arbitrator. Thus, by striking all 

the arbitrators on the non-public list, 

any party could ensure that the panel 

would have three public arbitrators. 

The proposed rule change would 

apply only to customer disputes. It 

would not apply to arbitrator selection 

in disputes involving only industry 

parties. FINRA believes giving 

customers the option of an all public 

panel will enhance confidence in and 

increase the perception of fairness in the 

FINRA arbitration process. All 

customers will have greater freedom in 

choosing arbitration panels, and any 

customer will have the power to have 

his or her case heard by a panel with no 

industry participants. 

FINRA’s Public Arbitrator Pilot Program 

Customer advocates argue that the 

mandatory inclusion of a non-public 

arbitrator (often referred to as the 

‘‘industry’’ arbitrator) in a three 

arbitrator case raises a perception that 

FINRA Dispute Resolution’s current 

forum is not fair to customers. In order 

to address this perception, FINRA 

launched a pilot program (‘‘the Pilot’’) 

that allows parties to choose a panel of 

three public arbitrators instead of two 

public arbitrators and one non-public 

arbitrator. 

FINRA designed the Pilot to run for 

two sequential years, beginning October 

6, 2008, and ending October 5, 2010. In 

Year One, 11 brokerage firms 

volunteered to participate in the Pilot, 

each contributing a set number of cases 

to the Pilot per year for two years. In 

Year Two, FINRA expanded the number 

of participating brokerage firms to 14 

firms. In addition, several of the original 

participants increased their respective 

case commitments for Year Two. 

Participating firms agreed to extend the 

Pilot for a third year at the same case 

levels while the rule making process 

proceeds. Year Three of the Pilot began 

October 6, 2010, and ends October 5, 

2011, or upon implementation of the 

proposed rule change, whichever comes 

first. 

Under the Pilot, FINRA only permits 

a customer bringing the arbitration 

claim to decide whether his or her case 

should proceed under Pilot rules; the 

participating firms cannot select the 

Pilot cases. The parties receive the same 

three lists of proposed arbitrators that 

parties in non-Pilot cases receive. The 

difference is that, in the Pilot cases, any 

party can strike any or all of the 

arbitrators on the non-public list (as 

opposed to the four-strike limit for each 

party). If the parties rank one or more 

of the non-public arbitrators, FINRA 

appoints the highest ranked non-public 

arbitrator to the panel. If the parties 

strike all of the non-public arbitrators or 

if they are unable to serve, FINRA 

returns to the public arbitrator lists (the 

public list first, followed by the chairqualified public list) to complete the 

panel. If no public arbitrators remain on 

the lists, FINRA uses NLSS to appoint 

randomly an additional public 

arbitrator. Thus, by striking all proposed 

non-public arbitrators, any party can 

choose a panel of three public 

arbitrators. 

Reactions from participants in the 

Pilot indicate that customer 

representatives strongly support the 

right of customers to decide whether to 

select any non-public arbitrator. That 

feedback has led FINRA to propose 

amending the panel composition rule 

for customer cases to allow the customer 

party to choose between the current 

panel selection method and the method 

used in the Pilot. Unlike the Pilot, 

however, the proposed rule would 

apply to all customer disputes against 

any firm and any individual broker. 

Details of the Proposed Rule Change 

Currently, Rule 12402 (Composition 

of Arbitration Panels) specifies the 

panel composition for all customer 

cases.7 Rules 12403 (Generating and 

Sending Lists to the Parties),8 12404 

(Striking and Ranking Arbitrators),9

12405 (Combining Lists),10 12406 

(Appointment of Arbitrators; Discretion 

to Appoint Arbitrators Not on List),11

and 12411 (Replacement of Arbitrators) 

enumerate the procedures for selecting, 

appointing, and replacing arbitrators.12

FINRA is proposing to consolidate these 

rules into two new rules: New Rule 

12402 relating to customer cases with 

one arbitrator, and new Rule 12403 

relating to customer cases with three 

arbitrators. New Rule 12402 would 

describe the procedures for selecting, 

appointing, and replacing the arbitrator 

in a single arbitrator case. New Rule 

12403 would describe the two options 

that customers have for selecting 

arbitrators and would include the 

procedures for appointing and replacing 

arbitrators. The proposed rule change 

would apply to all customer cases. 

FINRA would delete current Rules 

12402, 12403, 12404, 12405, 12406, and 

12411 in their entirety. FINRA would 

renumber the remaining rules in the 

12400 series so that the numbering 

would remain consecutive after FINRA 

consolidated the rules. 

New Rule 12402—Cases With One 

Arbitrator 

New Rule 12402 (Cases with One 

Arbitrator) would consolidate the 

content of current Rules 12402, 12403, 

12404, 12405, 12406, and 12411, 

relating to single arbitrator cases. FINRA 

is not proposing any substantive 

changes to the current procedures for 

selecting, appointing, and replacing 

arbitrators in cases with one arbitrator. 

New Rule 12403—Cases With Three 

Arbitrators 

New Rule 12403 (Cases with Three 

Arbitrators) would provide customers 

with two options for panel selection in 

three arbitrator cases. The first option, 

the Majority Public Panel, would consist 

of the panel composition method 

currently provided in the Customer 

Code. It would ensure that FINRA 

appoints one non-public arbitrator on a 

three arbitrator panel. The second 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 75, No. 218 / Friday, November 12, 2010 / Notices 69483 

13 15 U.S.C. 78o–3(b)(6). 

option, the Optional All Public Panel 

(based on the Pilot), if selected by the 

customer, would guarantee that any 

party could select an all public panel. 

As stated above, the proposed rule 

change allows only customers to make 

the election between the two panel 

selection methods. If implemented as 

proposed, FINRA will allow any 

customer that has not been sent lists of 

arbitrators to choose between the two 

panel selection methods. Except as 

outlined below, FINRA would 

incorporate into new Rule 12403 the 

contents of current Rules 12403, 12404, 

12405, 12406, and 12411, that are 

pertinent to three arbitrator cases. 

Under the proposed rule change, the 

customers could elect either arbitrator 

selection method within 35 days from 

service of the Statement of Claim. If the 

customers declined to make an 

affirmative election by the 35-day 

deadline, FINRA would apply the 

composition rule for a Majority Public 

Panel. 

Under either panel selection option, 

the parties would receive three lists— 

i.e., one with 10 chair-qualified public 

arbitrators, one with 10 public 

arbitrators, and one with 10 non-public 

arbitrators. FINRA would permit each 

party to strike up to four arbitrators on 

the chair-qualified public and public 

lists, leaving at least six arbitrator names 

remaining on each party’s list. However, 

the process for striking arbitrators on the 

non-public list would be different for 

each method, as detailed below. 

Majority Public Panel—This is the 

current method for panel composition. 

Under this method: 

• Each separately represented party 

could exercise up to four strikes on the 

non-public list. 

• FINRA would appoint the highestranked available non-public arbitrator 

from the combined rankings. 

• In cases in which the parties struck 

all of the arbitrators appearing on the 

non-public list or when all remaining 

arbitrators on the non-public list were 

unable or unwilling to serve for any 

reason, FINRA would appoint a nonpublic arbitrator selected randomly by 

NLSS. 

Optional All Public Panel—Under this 

method of panel composition: 

• All parties would have unlimited 

strikes with respect to the non-public 

list (meaning that any party may strike 

up to all names on the non-public list). 

• FINRA would not appoint a nonpublic arbitrator if the parties 

(individually or collectively) struck all 

the arbitrators appearing on the nonpublic list or if all remaining arbitrators 

on the non-public list were unable or 

unwilling to serve for any reason. 

• If all non-public arbitrators were 

stricken or unavailable to serve, FINRA 

would select the next highest-ranked 

public arbitrator to complete the panel. 

• If all public arbitrators were 

stricken or unavailable to serve, FINRA 

would select the next highest-ranked 

arbitrator on the public chair-qualified 

list. 

• If all public chair-qualified 

arbitrators were stricken or unavailable 

to serve, FINRA would appoint a public 

arbitrator selected randomly by NLSS. 

Additional Clarifying Provisions 

FINRA proposes to add clarity to 

Rules 12402 and 12403 by stating that 

parties are not required to send a copy 

of their ranking list to opposing parties. 

In addition, under the Optional All 

Public Panel method, FINRA would 

appoint a non-public arbitrator to a 

panel if the Director did not receive a 

party’s ranked lists within the 

timeframe for returning lists to FINRA 

because the Director would proceed as 

though the party did not want to strike 

any arbitrator or have any preferences 

among the listed arbitrators. FINRA 

proposes to add clarity to the Optional 

All Public Panel provision by alerting 

parties that a failure to comply with the 

required timeframe for returning lists to 

FINRA may result in the appointment of 

a panel consisting of two public 

arbitrators and one non-public 

arbitrator. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of 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. FINRA believes that 

providing customers with choice on the 

issue of including a non-public 

arbitrator on the panel deciding their 

case will enhance customers’ perception 

of the fairness of FINRA’s rules and of 

its securities arbitration process. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

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 (i) 

as the Commission may designate up to 

90 days of such date 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: 

(A) By order approve or disapprove 

such 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 (http://www.sec.gov/ 

rules/sro.shtml); or 

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

Number SR–FINRA–2010–053 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–FINRA–2010–053. 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 

mstockstill on DSKH9S0YB1PROD with NOTICES

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 

mstockstill on DSKH9S0YB1PROD with NOTICES