Federal Register / Vol. 75, No. 45 / Tuesday, March 9, 2010 / Notices 10851 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4See NYSE Amex Rule 900.2NY(18). 

5See, e.g., NYSE Amex Rule 963NY Priority and 

Order Allocation Procedures—Open Outcry, 

963.1NY Complex Order Transactions, 964NY 

Display, Priority and Order Allocation—Trading 

Systems, and 980NY(b) Priority of Complex Orders 

in the Consolidated Book. 

6Market professionals have access to 

sophisticated trading systems that contain 

functionality not available to retail investors, 

including things such as continuously updated 

pricing models based on real-time streaming data, 

access to multiple markets simultaneously, and 

order and risk management tools. 

7For example, some Broker/Dealers provide 

professional customers with multi-screened trading 

stations equipped with trading technology that 

allows the trader to monitor and place orders on all 

seven options exchanges simultaneously. These 

trading stations also provide compliance filters, 

order management tools, the ability to place orders 

in the underlying securities, and market data feeds. 

See Securities Exchange Act Releases 59287 

(January 23, 2009), 74 FR 5694 (January 30, 2009) 

(SR–ISE–2006–26) (order approving International 

Securities Exchange (‘‘ISE’’) proposal to introduce 

priority customer and professional orders) and 

57254 (February 1, 2008), 73 FR 7345(February 7, 

2008) (SR–ISE–2006–26) (notice of ISE proposal to 

introduce priority customer and professional 

orders) at note 8, See also Securities Exchange Act 

Release 61198 (December 17, 2009), 74 FR 68880 

(December 29, 2009) (SR–CBOE–2009–078) (order 

approving CBOE proposal to introduce Professional 

Customers). 

8Market Makers enter quotes based on the 

theoretical value of the option, which moves with 

various factors in their pricing models, such as the 

value of the underlying security. Professional 

customers place and cancel orders in relation to an 

option’s theoretical value in much the same manner 

as a Market Maker. This is evidenced by the entry 

of limit orders that join the best bid or offer and 

by a very high rate of orders that are entered and 

cancelled. In contrast, retail investors who enter 

orders as part of an investment strategy (such as a 

buy/write or directional trade) most frequently 

enter marketable orders or limit orders that they do 

not cancel and replace. See, e.g., Securities 

Exchange Act Release 57254 at note 9. 

The subject matter of the Closed 

Meeting scheduled for Thursday, March 

11, 2010 will be: Formal order of 

investigation; institution and settlement 

of injunctive actions; institution and 

settlement of administrative 

proceedings; an adjudicatory matter; 

and other matters relating to 

enforcement proceedings. 

At times, changes in Commission 

priorities require alterations in the 

scheduling of meeting items. 

For further information and to 

ascertain what, if any, matters have been 

added, deleted or postponed, please 

contact: The Office of the Secretary at 

(202) 551–5400. 

Dated: March 4, 2010. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–5053 Filed 3–5–10; 11:15 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61629; File No. SR– 

NYSEAmex–2010–18) 

Self-Regulatory Organizations; NYSE 

Amex LLC; Notice of Filing of 

Proposed Rule Change Relating to the 

Designation of a ‘‘Professional 

Customer’’ 

March 2, 2010. 

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 

25, 2010, NYSE Amex LLC (‘‘NYSE 

Amex’’ or the ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III 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 designate 

any Customer that places more than 390 

orders in listed options per day on 

average during a calendar month for its 

own beneficial account(s) as a 

‘‘Professional Customer.’’ The text of the 

proposed rule change is attached as 

Exhibit 5 to the 19b–4 form. A copy of 

this filing is available on the Exchange’s 

Web site at http://www.nyse.com, at the 

Exchange’s principal office and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

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

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Under NYSE Amex rules, a 

‘‘Customer’’ is an individual or 

organization that is not a Broker/ 

Dealer.4 This term is used in specific 

NYSE Amex rules that provide certain 

marketplace advantages to Customer 

orders over non-customer orders (e.g., 

orders for the account of ATP holders or 

broker/dealers). In particular, under 

NYSE Amex rules, subject to certain 

exceptions, (i) Customer orders are 

given priority over non-customer orders 

and Market-Maker quotes at the same 

price,5 and (ii) ATP holders are 

generally not charged a transaction fee 

for the execution of Customer orders. 

The purpose of providing these 

marketplace advantages to Customer 

orders is to attract retail investor order 

flow to the Exchange by leveling the 

playing field for retail investors over 

market professionals6 and to provide 

competitive pricing. 

With respect to these NYSE Amex 

marketplace advantages, the Exchange 

does not believe the definition of 

Customer versus a non-Customer 

properly distinguishes between nonprofessional retail investors and certain 

professionals. The Exchange believes 

that providing marketplace advantages 

based upon whether the order is for the 

account of a participant that is a 

registered Broker/Dealer is no longer 

appropriate in today’s marketplace 

because some non-broker-dealer 

individuals and entities have access to 

information and technology that enables 

them to professionally trade listed 

options in the same manner as a broker 

or dealer in securities.7 These 

individual traders and entities 

(collectively, ‘‘Professional Customers’’) 

have the same technological and 

informational advantages over retail 

investors as broker-dealers trading for 

their own account, which enables them 

to compete effectively with brokerdealer orders and market maker quotes 

for execution opportunities in the NYSE 

Amex marketplace.8

The Exchange therefore does not 

believe that it is consistent with fair 

competition for these professional 

account holders to continue to receive 

the same marketplace advantages as 

retail investors over Broker/Dealers 

trading on NYSE Amex. Moreover, 

because Customer orders at the same 

price are executed in time priority, retail 

investors are prevented from fully 

benefiting from the priority advantage 

when Professional Customers are 

afforded Customer order priority. 

Accordingly, the Exchange is seeking 

to adopt a new term that will be used 

to more appropriately provide NYSE 

Amex marketplace advantages to retail 

investors on NYSE Amex. Under the 

proposal, a ‘‘Professional Customer’’ will 


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10852 Federal Register / Vol. 75, No. 45 / Tuesday, March 9, 2010 / Notices 

9The Exchange intends to require firms to 

identify Professional Customer orders submitted 

electronically to the system by identifying them 

with the number ‘‘8’’ in the customer type field— 

a mandatory field required for order entry. Manual 

orders submitted outside the electronic system will 

be marked with an origin code of ‘‘PC.’’ These 

Professional Customer identifiers will also flow 

through Exchange systems into audit trail and trade 

reporting data. 

10Orders for any customer that had an average of 

more than 390 orders per day during any month of 

a calendar quarter must be represented as 

Professional Customer orders for the next calendar 

quarter. ATP Holders will be required to conduct 

a quarterly review and make any appropriate 

changes to the way in which they are representing 

orders within five days after the end of each 

calendar quarter. While members only will be 

required to review their accounts on a quarterly 

basis, if during a quarter the Exchange identifies a 

customer for which orders are being represented as 

Customer orders but that has averaged more than 

390 orders per day during a month, the Exchange 

will notify the ATP Holder and the ATP Holder will 

be required to change the manner in which it is 

representing the customer’s orders within five days. 

11 15 U.S.C. 78k(a). 

12 17 CFR 240.11a1–1(T). 

13See, NYSE Amex Rule 910NY. 

14Section 11(a)(1)(A). 

15 17 CFR 240.11a2–2(T). 

16The ATP Holder, however, may participate in 

clearing and settling the transaction. 

17 17 CFR 240.11a2–2(T). 

18See Securities Exchange Act Release No. 59546 

(March 10, 2009), 74 FR 11144 (March 16, 2009) 

(SR–CBOE–2009–016). 

19Three hundred ninety orders is equal to the 

total number of orders that a person would place 

in a day if that person entered one order every 

minute from market open to close. Many of the 

largest retail-oriented electronic brokers offer lower 

commission rates to customers they define as 

‘‘active traders.’’ Publicly available information from 

the websites for Charles Schwab, Fidelity, TD 

Ameritrade and optionsXpress all define an ‘‘active 

trader’’ as someone who executes only a few options 

trades per month. The highest required trading 

activity to qualify as an active trader among these 

four firms was 35 trades per quarter. See Securities 

Exchange Act Release 57254 at note 11 (which also 

notes that a study of one of the largest retailoriented options brokerage firms indicated that on 

a typical trading day, options orders were entered 

with respect to 5922 different customer accounts. 

There was only one order entered with respect to 

3765 of the 5922 different customer accounts on 

this day, and there were only 17 customer accounts 

with respect to which more than 10 orders were 

entered. The highest number of orders entered with 

respect to any one account over the course of an 

entire week was 27). 

be defined in proposed Rule 900.2NY 

(18A) as a person or entity that (i) is not 

a broker or dealer in securities, and (ii) 

places more than 390 orders in listed 

options per day on average during a 

calendar month for its own beneficial 

account(s). Under the proposal, a 

Professional Customer will be treated in 

the same manner as a broker or dealer 

in securities for purposes of NYSE 

Amex Rules 900.3NY(j) (Facilitation 

Order), 904G(f) (FLEX Trading 

Procedures and Principles—Crossing 

Limitations), 934NY (Crossing), 

934.1NY (Facilitation Cross 

Transactions), 934.2NY (At-Risk Cross 

Transactions), 934.3NY (Solicitation), 

963NY (Priority and Order Allocation 

Procedures—Open Outcry), 963.1NY 

(Complex Order Transactions), 964NY 

(Display, Priority and Order 

Allocation—Trading Systems), 

964.2NY(b)(1)(iii) (Participation 

Entitlement of Specialists and eSpecialists), 964.2NY(b)(3)(B) 

(Allocation of Participation Entitlement 

Amongst Specialist Pool), 980NY(b) 

(Electronic Complex Order Trading), 

Rule 995NY(b) (Prohibited Conduct— 

Limit Orders) and the Exchange’s 

schedule of fees. 

The use of this new term for purposes 

of the above-referenced execution rules 

will result in Professional Customer 

account holders participating in NYSE 

Amex’s allocation process on equal 

terms with Broker/Dealer orders. The 

proposal will not otherwise affect nonBroker/Dealer individuals or entities 

under NYSE Amex rules. For example, 

NYSE Amex will provide the same 

away-market protection for all Customer 

orders, including non-Broker/Dealer 

orders that are included in the 

definition of ‘‘Professional Customer’’ 

orders. 

In order to properly represent orders 

entered on the Exchange according to 

the new definitions, ATP holders will 

be required to indicate whether 

Customer orders are ‘‘Professional 

Customer’’ orders.9 To comply with this 

requirement, ATP holders will be 

required to review their customers’ 

activity on at least a quarterly basis to 

determine whether orders that are not 

for the account of a broker or dealer 

should be represented as Customer 

orders or Professional Customer 

orders.10

Lastly, the Exchange intends to 

establish, via a separate rule filing, 

transaction fees applicable to 

Professional Customers. The Exchange 

will not commence the Professional 

Customer program until such fees are in 

place. 

Section 11(a) of the Act prohibits any 

member of a national securities 

exchange from effecting transactions on 

that exchange for its own account, the 

account of an associated person, or an 

account over which it or its associated 

persons exercises discretion unless an 

exception applies.11 Section 11(a)(1) 

contains a number of exceptions for 

principal transactions by members and 

their associated persons. One such 

exception, set forth in subparagraph (G) 

of Section 11(a)(1) and in Rule 11a1– 

1(T),12 permits any transaction for a 

member’s own account provided, among 

other things, that the transaction yields 

priority, parity, and precedence to 

orders for the account of persons who 

are not member or associated with 

members of the exchange. Exchange 

rules, therefore, may require members to 

yield priority to the orders of non-ATP 

Holders, including Customers, to satisfy 

this exception to Section 11(a).13

Another exception permits market 

makers to effect transactions on 

exchanges in which they are members.14

In addition to the exceptions noted 

above, Rule 11a2–2(T) under the Act15

provides exchange members with an 

exception from the prohibitions in 

Section 11(a). Rule 11a2–2(T), known as 

the ‘‘effect versus execute’’ rule, permits 

an exchange member, subject to certain 

conditions, to effect transactions for its 

own account, the account of an 

associated person, or an account with 

respect to which it or an associated 

person thereof exercises investment 

discretion (collectively ‘‘covered 

accounts’’) by arranging for an 

unaffiliated member to execute the 

transaction on the exchange. 

To comply with the ‘‘effect versus 

execute’’ rule’s conditions, a member: (i) 

Must transmit the order from off the 

exchange floor; (ii) may not participate 

in the execution of the transaction once 

it has been transmitted to the member 

performing the execution;16 (iii) may not 

be affiliated with the executing member; 

and (iv) with respect to an account over 

which the member has investment 

discretion, neither the member nor its 

associated person may retain any 

compensation in connection with 

effecting the transaction except as 

provided in the rule.17

The Exchange does not believe that its 

proposal relating to Professional 

Customer orders would affect the 

availability of the exceptions to Section 

11(a) of the Act, including the 

exceptions in subparagraph (G) of 

Section 11(a) and in Rules 11a1–1(T) 

and 11a2–2(T), as are currently 

available.18

The Exchange believes that 

identifying Professional Customer 

account holders based upon the average 

number of orders entered for a 

beneficial account is an appropriately 

objective approach that will reasonably 

distinguish such persons and entities 

from retail investors. The Exchange 

proposes the threshold of 390 orders per 

day on average over a calendar month 

because it believes it far exceeds the 

number of orders that are entered by 

retail investors in a single day,19 while 

being a sufficiently low number of 

orders to cover the Professional account 


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Federal Register / Vol. 75, No. 45 / Tuesday, March 9, 2010 / Notices 10853 

20 15 U.S.C. 78f(b). 

21 15 U.S.C. 78f(b)(5). 

22 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

holders that are competing with Broker/ 

Dealers in the NYSE Amex marketplace. 

In addition, basing the standard on the 

number of orders that are entered in 

listed options for a beneficial account(s) 

assures that Professional Customer 

account holders cannot inappropriately 

avoid the purpose of the rule by 

spreading their trading activity over 

multiple exchanges, and using an 

average number over a calendar month 

will prevent gaming of the 390 order 

threshold. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,20 in general, and furthers the 

objectives of Section 6(b)(5) of the Act,21

in particular, in that it is 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. In particular, the 

proposal will assure that retail investors 

continue to receive the appropriate 

marketplace advantages in NYSE Amex 

marketplace, while furthering fair 

competition among marketplace 

professionals by treating them equally 

within the NYSE Amex marketplace. 

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. 

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 35 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 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–NYSEAmex–2010–18 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–NYSEAmex–2010–18. 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 the filing will 

also be available for inspection and 

copying at NYSE‘s principal office and 

on its Internet Web site at http:// 

www.nyse.com. 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– 

NYSEAmex–2010–18 and should be 

submitted on or before March 30, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.22

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–4909 Filed 3–8–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61628; File No. SR–CBOE– 

2010–019] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Related to Multi-Class 

Broad Based Index Option Spread 

Orders 

March 2, 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 February 

18, 2010, the Chicago Board Options 

Exchange, Incorporated (‘‘Exchange’’ or 

‘‘CBOE’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change as described 

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

have been prepared by the Exchange. 

The Exchange filed the proposal as a 

‘‘non-controversial’’ proposed rule 

change pursuant to Section 

19(b)(3)(A)(iii) of the Act3 and Rule 

19b–4(f)(6) thereunder,4 which renders 

the proposal 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 is proposing to amend 

its rule related to multi-class broadbased index option spreads to include 

options on index-linked securities (also 

known as exchange-traded notes 

(‘‘ETNs’’)) within the definition of an 

eligible ‘‘broad-based index option.’’ The 

text of the proposed rule change is 

available on the Exchange’s Web site 

(http://www.cboe.org/Legal), at the 

Exchange’s Office of the Secretary and 

at the Commission. 


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