Federal Register / Vol. 74, No. 172 / Tuesday, September 8, 2009 / Notices 46261 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4 In addition, through a separate filing the 

Exchange proposes to adjust DMM units’ rebate 

payments to be based on (i) an increased amount 

of time that DMM units must maintain a bid and 

an offer at the NBBO on a stock by stock basis 

during a month; and (ii) a requirement that the 

DMM units be 25% of the quoted volume during 

the trading day on a stock by stock basis. See SR– 

NYSE–2009–90. 

5See Securities Exchange Act Release No. 58845 

(October 24, 2008), 73 FR 64379 (October 29, 2008) 

(SR–NYSE–2008–46) (approving certain rules to 

operate as a pilot scheduled to end October 1, 

2009). The NYSE also recognized that in view of the 

NYSE’s electronic execution functionality, the 

DMM, unlike the specialist, would no longer be 

deemed the agent for every incoming order. The 

NYSE also responded to customer demand to create 

additional undisplayed reserve interest. 

6Under NYSE Rule 103B, if a DMM unit fails to 

satisfy the quoting requirements during a onemonth period, the Exchange issues an initial 

warning letter to the DMM unit, advising it of its 

deficiency. The DMM unit must provide in writing 

an explanation and articulation of corrective action. 

If the DMM unit fails to meet the requirement for 

a second consecutive month, the DMM unit is 

ineligible to participate in the allocation process for 

a minimum of two months following the second 

consecutive month of its failure to meet its quoting 

requirement (‘‘Penalty Period’’). The DMM unit 

must satisfy the quoting requirement for the two 

consecutive months of the Penalty Period. In the 

event a DMM unit fails to satisfy its quoting 

requirements for the two consecutive months of the 

Penalty Period, the DMM unit will remain ineligible 

to participate in the allocation process until it has 

met the quoting requirement for a consecutive two 

calendar month period. Under NYSE Rule 104, 

failure to satisfy the quoting requirement is a 

violation of the DMM unit’s affirmative obligation 

and may subject the DMM unit to regulatory action, 

including formal or informal discipline. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60595; File No. SR–NYSE– 

2009–91] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by New York 

Stock Exchange LLC Amending NYSE 

Rules 103B and 104 To Increase the 

Amount of Time That a Designated 

Market Maker Unit Must Maintain a Bid 

and an Offer at the National Best Bid 

and National Best Offer for an 

Aggregate Average Period of Time 

Monthly 

August 31, 2009. 

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 August 

31, 2009, New York Stock Exchange 

LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the self-regulatory 

organization. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

NYSE Rules 103B and 104 to increase 

the amount of time that a Designated 

Market Maker unit must maintain a bid 

and an offer at the National Best Bid and 

National Best Offer for an aggregate 

average period of time monthly. The 

text of the proposed rule change is 

available at the Exchange, the 

Commission’s Public Reference Room, 

and www.nyse.com. 

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 

Exchange market participants want a 

trading venue that encourages 

participants to add liquidity and 

facilitate their ability to trade larger 

orders more efficiently. The Exchange 

believes that essential to meeting the 

demands of its market participants and 

maintaining market quality is the 

availability of liquidity at the National 

Best Bid (‘‘NBB’’) and National Best 

Offer (‘‘NBO’’) (collectively herein 

‘‘NBBO’’).4 The Exchange therefore 

proposes to amend NYSE Rules 103B 

and 104 to increase the amount of time 

that a Designated Market Makers 

(‘‘DMM’’) unit must maintain a bid and 

an offer at the NBBO for an aggregate 

average period of time monthly. 

Background 

The NYSE implemented sweeping 

changes to its market rules and 

execution technology designed to 

improve execution quality on the 

Exchange.5 Among the elements of the 

enhanced Exchange market model, the 

NYSE eliminated the function of 

specialists on the Exchange creating a 

new category of market participant, the 

Designated Market Maker or DMM. The 

DMM, like specialists, have affirmative 

obligations to make an orderly market, 

including continuous quoting 

requirements and obligations to re-enter 

the market when reaching across to 

execute against trading interest. 

Moreover, the Exchange’s market 

model was designed to encourage 

DMMs to add liquidity at the NBBO. 

Specifically, the Exchange implemented 

quoting requirements pursuant to 

Exchange Rules 103B (‘‘Security 

Allocation and Reallocation’’) and 104 

(‘‘Dealings and Responsibilities of 

DMMs’’). The quoting requirement 

pursuant to Rule 103B is the single 

objective standard to determine DMM 

unit eligibility for participation in the 

allocation process. NYSE Rule 104 

employs the same numerical standards 

as it relates to a DMM unit’s affirmative 

obligations to maintain a continuous 

two-sided quote. 

Under current Rules 103B and 104, 

for listed securities that have a 

consolidated average daily volume of 

less than one million shares per 

calendar month (‘‘Less Active’’) a DMM 

unit must maintain a bid and an offer at 

the NBBO for an aggregate average 

monthly time of 10% or more during a 

calendar month. For listed securities 

that have a consolidated average daily 

volume equal to or greater than one 

million shares per calendar month 

(‘‘More Active’’), the DMM unit must 

maintain a bid and an offer at the NBBO 

for an aggregate average monthly time of 

5% or more during a calendar month. 

DMM units are required to satisfy the 

quoting requirement for both categories 

of their assigned securities.6

Time at the NBBO is calculated as the 

average of the percentage of time the 

DMM unit has a bid or offer at the 

NBBO. For example, if a DMM unit 

maintains a quote at the National Best 

Bid for 6% of the trading day and a 

quote at the National Best Offer for 4% 

of the trading day, then the average of 

these times is 5%. The Exchange 

determines whether a DMM unit has 

met its quoting requirements on a 

month-by-month basis by calculating: 

(1) The ‘‘Daily NBB Quoting Percentage’’ 

by determining the percentage of time a 

DMM unit has at least one round lot of 

displayed interest in an Exchange bid at the 

National Best Bid during each Trading Day 

for a calendar month; 

(2) The ‘‘Daily NBO Quoting Percentage’’ 

by determining the percentage of time a 

DMM unit has at least one round lot of 

displayed interest in an Exchange offer at the 


jlentini on DSKJ8SOYB1PROD with NOTICES
46262 Federal Register / Vol. 74, No. 172 / Tuesday, September 8, 2009 / Notices 

7See NYSE Rule 103B, Section II(J)(4). 

National Best Offer during each Trading Day 

for a calendar month; 

(3) The ‘‘Average Daily NBBO Quoting 

Percentage’’ for each Trading Day by 

summing the ‘‘Daily NBB Quoting 

Percentage’’ and the ‘‘Daily NBO Quoting 

Percentage’’ then dividing such sum by two; 

(4) The ‘‘Monthly Average NBBO Quoting 

Percentage’’ for each security by summing 

the security’s ‘‘Average Daily NBBO Quoting 

Percentages’’ for each Trading Day in a 

calendar month then dividing the resulting 

sum by the total number of Trading Days in 

such calendar month; and 

(5) For the total Less Active Securities 

(More Active Securities) assigned to a DMM 

unit, the Exchange will determine the 

‘‘Aggregate Monthly Average NBBO Quoting 

Percentage’’ by summing the Monthly 

Average NBBO Quoting Percentages for each 

Less Active Security (More Active Security) 

assigned to a DMM unit, then dividing such 

sum by the total number of Less Active 

Securities (More Active Securities) assigned 

to such DMM unit. 

Below is an example of a quoting 

requirement calculation. For purposes 

of this example, it is assumed that DMM 

Unit 1 has two assigned securities, A 

and B and that there were 5 trading days 

in the selected calendar month. 

The Average Daily NBBO for DMM 

Unit 1 is calculated for each security by 

summing the daily NBB and NBO of 

each security for that day and dividing 

that number by two: 

Trading 

days 

NBB 

(percent) 

NBO 

(percent) Calculation average daily NBBO for DMM Unit 1 

Average 

daily NBBO 

(percent) 

Security A 

T1 ............. 4 6 4% + 6% = 10% divided by 2 = 5% .................................................................................. 5 

T2 ............. 3 5 3% + 5% = 8% divided by 2 = 4% .................................................................................... 4 

T3 ............. 4 4 4% + 4% = 8% divided by 2 = 4% .................................................................................... 4 

T4 ............. 6 8 6% + 8% = 14% divided by 2 = 7% .................................................................................. 7 

T5 ............. 5 5 5% + 5% = 10% divided by 2 = 5% .................................................................................. 5 

Security B 

T1 ............. 5 7 5% + 7% = 12% divided by 2 = 6% .................................................................................. 6 

T2 ............. 4 6 4% + 6% = 10% divided by 2 = 5% .................................................................................. 5 

T3 ............. 6 8 6% + 8% = 14% divided by 2 = 7% .................................................................................. 7 

T4 ............. 7 9 7% + 9% = 16% divided by 2 = 8% .................................................................................. 8 

T5 ............. 9 9 9% + 9% = 18% divided by 2 = 9% .................................................................................. 9 

The monthly average NBBO quoting 

percentage for DMM Unit 1 for each 

security is then calculated by summing 

the security’s average Daily NBBO 

Quoting Percentages for all the Trading 

Days of the calendar month and then 

dividing the resulting total by the 

number of Trading Days in the calendar 

month (in this instance 5). 

Average daily NBBO 

Calculation monthly average NBBO for DMM Unit 1 

Monthly 

average 

T1 T2 T3 T4 T5 NBBO 

Security A 

5% ........... 4% 4% 7% 5% 5% + 4% + 4% + 7% + 5% = 25% divided by 5 = 5% ..... 5% 

Security B 

6% ........... 5% 7% 8% 9% 6% + 5% + 7% + 8% + 9% = 35% divided by 5 = 7% ..... 7% 

The Aggregate Monthly Average 

NBBO Quoting Percentage for DMM 

Unit 1 is determined by summing the 

Monthly Average NBBO for each 

security and then dividing such sum by 

the total number of securities. 

Aggregate Monthly Average for 

Specialist Unit 1 

Monthly Average NBBO Security A + 

Monthly Average NBBO Security B 

divided by 2 

5% + 7% = 12% divided by 2 = 6% 

Aggregate Monthly Average 

The Exchange reviews each DMM 

unit’s trading, as illustrated in the 

example above, on a monthly basis to 

determine whether the DMM unit has 

satisfied its quoting requirement.7 In the 

example above, assuming that Securities 

A and B were Less Active Securities, 

then the DMM Unit 1 would not have 

met that component of its quoting 

obligation for the month because the 6% 

aggregate monthly average is 4% less 

than the required 10% monthly average 

time at the NBBO for its Less Active 

Securities. If however, Securities A and 

B were More Active Securities, then 

DMM Unit 1 would have met that 

component of its quoting obligation for 

the month because the 6% aggregate 

monthly average is 1% higher than the 

5% monthly average time at the NBBO 

for More Active Securities. 

Proposed Amendment to NYSE Rules 

103B and 104 

The Exchange proposes to increase 

DMM units’ quoting requirement for 

both Less Active and More Active 

securities in both NYSE Rules 103B and 

104. For Less Active securities the 

Exchange seeks to amend NYSE Rule 

103B Section II(D) and NYSE Rule 

104(a)(1)(A) to increase the current 

requirement that DMM units be 10% of 

the time at the NBBO to 15%. For More 

Active securities, the Exchange 

proposes to amend NYSE Rule 103B 

Section II(E) and NYSE Rule 

104(a)(1)(A) to increase the current 5% 

of the time at the NBBO to 10%. Time 

at the NBBO will continue to be 

calculated on a month-by-month basis 

as the average of the percentage of time 

DMM units have a bid or offer at the 

NBBO. 

As proposed, assuming again that 

DMM Unit 1 has two assigned 

securities, A and B and that there were 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 172 / Tuesday, September 8, 2009 / Notices 46263 

8 15 U.S.C. 78a. 

9 15 U.S.C. 78f(b)(5). 

5 trading days in the selected calendar 

month, then DMM Unit 1 must increase 

its quoting such that for Less Active 

Securities, it is 10% of the time at the 

NBBO and for More Active Securities it 

is 15% of time at the NBBO as 

illustrated in the example below. 

Trading 

days 

NBB 

(percent) 

NBO 

(percent) Calculation average daily NBBO for DMM Unit 1 

Average 

daily NBBO 

(percent) 

Security A 

T1 ............. 8 12 8% + 12% = 20% divided by 2 = 10% .............................................................................. 10 

T2 ............. 6 10 6% + 10% = 16% divided by 2 = 8% ................................................................................ 8 

T3 ............. 8 8 8% + 8% =16% divided by 2 = 8% ................................................................................... 8 

T4 ............. 12 16 12% + 16% = 28% divided by 2 = 14% ............................................................................ 14 

T5 ............. 10 10 10% + 10% = 20% divided by 2 = 10% ............................................................................ 10 

Security B 

T1 ............. 10 14 10% + 14% = 24% divided by 2 = 12% ............................................................................ 12 

T2 ............. 8 12 8% + 12% = 20% divided by 2 = 10% .............................................................................. 10 

T3 ............. 12 16 12% + 16% = 28% divided by 2 = 14% ............................................................................ 14 

T4 ............. 14 18 14% + 18% = 32% divided by 2 = 16% ............................................................................ 16 

T5 ............. 18 18 18% + 18% = 36% divided by 2 = 18% ............................................................................ 18 

The monthly average NBBO quoting 

percentage for DMM Unit 1 for each 

security is then calculated by summing 

the security’s average Daily NBBO 

Quoting Percentages for all the Trading 

Days of the calendar month and then 

dividing the resulting total by the 

number of Trading Days in the calendar 

month (in this instance 5). 

Average daily NBBO 

Calculation monthly average NBBO for DMM Unit 1 

Monthly 

average 

T1 T2 T3 T4 T5 NBBO 

Security A 

10% ......... 8% 8% 14% 10% 10% + 8% + 8% + 14% + 10% = 50% divided by 5 = 

10%.

10% 

Security B 

12% ......... 10% 14% 16% 18% 12% + 10% + 14% + 16% + 18% = 70% divided by 5 = 

14%.

14% 

The Aggregate Monthly Average 

NBBO Quoting Percentage for DMM 

Unit 1 is determined by summing the 

Monthly Average NBBO for each 

security and then dividing such sum by 

the total number of securities. 

Aggregate Monthly Average for 

Specialist Unit 1 

Monthly Average NBBO Security A + 

Monthly Average NBBO Security B 

divided by 2 

10% + 14% = 24% divided by 2 = 

12% Aggregate Monthly Average 

In the example above, assuming 

Securities A and B were Less Active 

Securities, then DMM Unit 1 would not 

have met that component of the 

proposed quoting obligation for the 

month because the 12% aggregate 

monthly average is 3% less than the 

required 15% monthly average time at 

the NBBO for its Less Active Securities. 

If, however, Securities A and B were 

More Active Securities, then the DMM 

Unit 1 would have met that component 

of the proposed quoting obligation for 

that month because the 12% aggregate 

monthly average is 2% higher than the 

required 10% monthly average time at 

the NBBO for More Active Securities. 

The Exchange will continue to review 

each DMM unit’s trading on a monthly 

basis to determine whether the DMM 

unit has satisfied its quoting 

requirement for both Less Active and 

More Active Securities. The Exchange’s 

current review of DMM units’ trading on 

a monthly basis suggests that the 

proposed increase would not place an 

undue burden on DMM units. All DMM 

units currently exceed their quoting 

requirements on a monthly basis. Based 

on past performance, the Exchange 

anticipates that the changes proposed 

herein combined with the above 

referenced rebate changes will establish 

a new baseline for quoting by DMM 

units that will incentivize the DMM 

units to provide additional liquidity 

above the new proposed minimum 

standards. Accordingly, the Exchange 

believes that the proposed quoting 

requirements increase is reasonable, 

since it is anticipated to improve market 

quality by increasing liquidity at the 

NBBO, without adversely impacting the 

DMM units’ ability to meet their market 

making obligations. 

Moreover, the Exchange believes that 

increasing the quoting requirements 

pursuant to both NYSE Rules 103B and 

104 is consistent with the Exchange’s 

commitment to providing its customers 

with a trading venue that has deep 

liquidity at the NBBO and transparency, 

the hallmark of a fair and efficient 

market. 

2. Statutory Basis 

The basis under the Securities 

Exchange Act of 1934 (the ‘‘Act’’) 8 for 

these proposed rule changes is the 

requirement under Section 6(b)(5) 9 that 

an Exchange have rules that are 


jlentini on DSKJ8SOYB1PROD with NOTICES
46264 Federal Register / Vol. 74, No. 172 / Tuesday, September 8, 2009 / Notices 

10 15 U.S.C. 78s(b)(3)(A). 

11 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

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 17 CFR 240.19b–4(f)(6). 

13 Id. 

14For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

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

15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

designed 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 rule 

change supports these principles in that 

it serves to increase the liquidity 

available at the NBBO. The Exchange 

believes that increased liquidity at the 

NBBO will lead to enhanced market 

quality which ultimately serves to 

protect investors and the public interest. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

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 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 10 and Rule 19b– 

4(f)(6) thereunder.11

A proposed rule change filed 

pursuant to Rule 19b–4(f)(6) under the 

Act 12 normally does not become 

operative for 30 days after the date of its 

filing. However, Rule 19b–4(f)(6) 13

permits the Commission to designate a 

shorter time if such action is consistent 

with the protection of investors and the 

public interest. The Exchange has 

requested that the Commission waive 

the 30-day operative delay so that the 

proposal may become operative 

immediately upon filing. The 

Commission believes that waiving the 

30-day operative delay 14 is consistent 

with the protection of investors and the 

public interest because such waiver will 

permit the Exchange to immediately 

apply the new enhanced quoting 

requirements. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission may summarily abrogate 

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. 

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–NYSE–2009–91 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–NYSE–2009–91. 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 inspection and copying 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 publicly available. All 

submissions should refer to File 

Number SR–NYSE–2009–91 and should 

be submitted on or before September 29, 

2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–21586 Filed 9–4–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60606; File No. SR–Phlx– 

2009–76] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by NASDAQ 

OMX PHLX, Inc. Relating to a 

Retroactive Waiver of the Cancellation 

Fee 

September 1, 2009. 

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 August 

27, 2009, NASDAQ OMX PHLX, Inc. 

(‘‘Phlx’’ or ‘‘Exchange’’) 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 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 proposes to 

retroactively waive the Cancellation Fee 

for the month of July 2009 and issue a 

rebate to member organizations for 

Cancellation Fees that were assessed in 

July 2009. 

The text of the proposed rule change 

is available on the Exchange’s Website 

at http://nasdaqomxphlx. 

cchwallstreet.com/NASDAQOMXPHLX/ 


jlentini on DSKJ8SOYB1PROD with NOTICES