Federal Register / Vol. 74, No. 189 / Thursday, October 1, 2009 / Notices 50861 

16 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 No. 60518 

(August 18, 2009), 74 FR 42725 (‘‘Notice’’). 

4See Notice, supra note 3, 74 FR at 42725–26. 

5NYSE Arca Rule 6.46(a) requires that a Floor 

Broker handling an order use due diligence to 

execute the order at the best price or prices 

available to him, in accordance with the Rules of 

the Exchange. 

6NYSE Arca Rule 6.47A states that users may not 

execute as principal orders they represent as agent 

unless (i) agency orders are first exposed on the 

Exchange for at least one second or (ii) the user has 

been bidding or offering on the Exchange for at least 

one second prior to receiving an agency order that 

is executable against such bid or offer. 

7NYSE Arca Rule 6.75 states that the highest bid/ 

lowest offer shall have priority over all other orders. 

In the event there are two or more bids/offers for 

the same option contract representing the best price 

and one such bid/offer is displayed in the 

Consolidated Book, such bid shall have priority 

over any other bid at the post. In addition, if two 

or more bids/offers represent the best price and a 

bid/offer displayed in the Consolidated Book is not 

involved, priority shall be afforded to such bids in 

the sequence in which they are made. Rule 6.75 

also contains certain provisions related to splitprice priority and priority of complex orders. 

8See Notice, supra note 3, 74 FR at 42726. 

9 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

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

10 15 U.S.C. 78f(b)(5). 

11 15 U.S.C. 78f(b)(1) and 78f(b)(6). 

12 17 CFR 240.19d–1(c)(2). 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NYSEArca–2009–85 and 

should be submitted on or before 

October 22, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–23698 Filed 9–30–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60716; File No. SR– 

NYSEArca–2009–70] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Approving Proposed 

Rule Change Amending Rule 10.12 

(Minor Rule Plan) 

September 24, 2009. 

On July 29, 2009, NYSE Arca, Inc. 

(‘‘NYSE Arca’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Act’’)1 and Rule 

19b–4 thereunder,2 a proposed rule 

change amending NYSE Arca Rule 10.12 

(Minor Rule Plan) (‘‘MRP’’) to 

incorporate additional violations into 

the MRP, and to increase the fine levels 

for certain MRP violations. The 

proposed rule change was published for 

comment in the Federal Register on 

August 24, 2009.3 The Commission 

received no comments regarding the 

proposal. This order approves the 

proposed rule change. 

The Exchange proposes to amend its 

MRP to incorporate violations for 

trading in restricted classes, and failure 

to report position and account 

information. Specifically, the Exchange 

proposes to implement a fine schedule 

for Options Trading Permit (‘‘OTP’’) 

Holders that affect opening transactions 

in restricted series of options, 

inconsistent with the terms of any such 

restriction, in violation of Rule 5.4(a). 

This fine will consist of $1,000 for the 

first violation during a rolling 24-month 

period, $2,500 for a second violation 

within the same period, and $5,000 for 

a third violation during the same period. 

The Exchange also proposes to 

incorporate violations for failing to 

accurately report position and account 

information to the Exchange on a Large 

Option Position Report (‘‘LOPR’’) 

pursuant to Rule 6.6(a). This fine will 

consist of $1,000 for the first violation 

in a rolling 24-month period, $2,500 for 

a second violation within the same 

period, and $5,000 for a third violation 

within the same period. The Exchange 

believes that, in most cases, violations 

of trading in restricted classes and 

violations of LOPR reporting may be 

handled efficiently through the MRP. 

However, any egregious activity or 

activity that is believed to be 

manipulative will continue to be subject 

to formal disciplinary proceedings.4

The Exchange also proposes to 

increase fines for violations of NYSE 

Arca Rules 6.46(a),5 6.47A,6 and 6.75 7

to $1,000 for the first violation in a 

rolling 24-month period, $2,500 for a 

second violation within the same 

period, and $5,000 for a third violation 

within the same period. The MRP 

currently provides for fines of $1,000 for 

the first violation of Rule 6.46(a) in a 

rolling 24-month period, $2,500 for a 

second violation within the same 

period, and $3,500 for a third violation 

within the same period. The MRP 

currently provides for fines of $500 for 

the first violation of Rule 6.47A in a 

rolling 24-month period, $1,000 for a 

second violation within the same 

period, and $2,500 for a third violation 

within the same period. The MRP 

currently provides for a fine of $500 for 

the first violation of Rule 6.75 in a 

rolling 24-month period, $1,000 for a 

second violation within the same 

period, and $2,000 for a third violation 

within the same period. The Exchange 

believes that, given the nature of these 

violations, the current fine levels are 

inadequate, and that increased fines for 

these violations are needed to deter 

future violations.8

The Commission finds that the 

proposal is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.9 In 

particular, the Commission believes that 

the proposal is consistent with Section 

6(b)(5) of the Act,10 which requires that 

the rules of an exchange be designed to, 

among other things, protect investors 

and the public interest. The 

Commission also believes that the 

proposal is consistent with Sections 

6(b)(1) and 6(b)(6) of the Act,11 which 

require that the rules of an exchange 

enforce compliance with, and provide 

appropriate discipline for, violations of 

Commission and exchange rules. 

Furthermore, the Commission believes 

that the proposed changes to the MRP 

should strengthen the Exchange’s ability 

to carry out its oversight and 

enforcement responsibilities as a selfregulatory organization in cases where 

full disciplinary proceedings are 

unsuitable in view of the minor nature 

of the particular violation. Therefore, 

the Commission finds that the proposal 

is consistent with the public interest, 

the protection of investors, or otherwise 

in furtherance of the purposes of the 

Act, as required by Rule 19d–1(c)(2) 

under the Act,12 which governs minor 

rule violation plans. 

In approving this proposed rule 

change, the Commission in no way 

minimizes the importance of 

compliance with NYSE Arca rules and 

all other rules subject to the imposition 

of fines under the MRP. The 

Commission believes that the violation 

of any self-regulatory organization’s 

rules, as well as Commission rules, is a 

serious matter. However, the MRP 

provides a reasonable means of 

addressing rule violations that do not 

rise to the level of requiring formal 

disciplinary proceedings, while 

providing greater flexibility in handling 

certain violations. The Commission 

expects that NYSE Arca will continue to 

conduct surveillance with due diligence 

and make a determination based on its 

findings, on a case-by-case basis, 

whether a fine of more or less than the 

recommended amount is appropriate for 

a violation under the MRP or whether 

a violation requires formal disciplinary 


PWALKER on DSK8KYBLC1PROD with NOTICES
50862 Federal Register / Vol. 74, No. 189 / Thursday, October 1, 2009 / Notices 

13 15 U.S.C. 78s(b)(2). 

14 17 CFR 240.19d–1(c)(2). 

15 17 CFR 200.30–3(a)(12); 17 CFR 200.30– 

3(a)(44). 

1A CDS is a bilateral contract between two 

parties, known as counterparties. The value of this 

financial contract is based on underlying 

obligations (‘‘reference obligations’’) of a single 

entity (a ‘‘reference entity’’) or on a particular 

security or other debt obligation (‘‘reference 

security’’), or an index of several such entities, 

securities, or obligations. The obligation of a seller 

under a CDS to make payments under a CDS 

contract is triggered by a default or other credit 

event as to such entity or entities or such security 

or securities. Investors may use CDS for a variety 

of reasons, including to offset or insure against risk 

in their fixed-income portfolios, to take positions in 

bonds or in segments of the debt market as 

represented by an index, or to capitalize on the 

volatility in credit spreads during times of 

economic uncertainty. The over-the-counter 

(‘‘OTC’’) market for CDS poses systemic risk to the 

financial system as well as operational risks, risks 

relating to manipulation and fraud, and regulatory 

arbitrage risks. 

2Securities Exchange Act Release No. 59165 

(December 24, 2008), 74 FR 133 (January 2, 2009). 

3Section 3A of the Exchange Act limits the 

Commission’s authority over swap agreements, as 

defined in Section 206A of the Gramm-Leach-Bliley 

Act. 15 U.S.C. 78c–1. Section 3A excludes both a 

non-security-based and a security-based swap 

agreement from the definition of ‘‘security’’ under 

Section 3(a)(10) of the Exchange Act, 15 U.S.C. 

78c(a)(10). Section 206A of the Gramm-Leach-Bliley 

Act defines a ‘‘swap agreement’’ as ‘‘any agreement, 

contract, or transaction between eligible contract 

participants (as defined in section 1a(12) of the 

Commodity Exchange Act * * *) * * * the 

material terms of which (other than price and 

quantity) are subject to individual negotiation.’’ 15 

U.S.C. 78c note. 

4 15 U.S.C. 78e and 78f. 

5A national securities exchange that effects 

transactions in CDS would continue to be required 

to comply with all requirements under the 

Exchange Act applicable to such transactions. A 

national securities exchange could form 

subsidiaries or affiliates that operate exchanges 

exempt under this order. Any subsidiary or affiliate 

of a registered exchange could not integrate, or 

otherwise link, the exempt CDS exchange with the 

registered exchange, including the premises or 

property of such exchange for effecting or reporting 

a transaction, without being considered a ‘‘facility 

of the exchange.’’ See Section 3(a)(2) of the 

Exchange Act, 15 U.S.C. 78c(a)(2). 

6 15 U.S.C. 78mm. 

7Section 3(a)(1) of the Exchange Act, 15 U.S.C. 

78c(a)(1), defines ‘‘exchange.’’ Rule 3b–16 under the 

Exchange Act, 17 CFR 240.3b–16, defines certain 

terms used in the statutory definition of exchange. 

See Securities Exchange Act Release No. 40760 

(December 8, 1998), 63 FR 70844 (December 22, 

1998) (‘‘Regulation ATS Adopting Release’’) 

(adopting Rule 3b–16 in addition to Regulation 

ATS). 

8 15 U.S.C. 78f. Section 6 of the Exchange Act also 

sets forth various requirements to which a national 

securities exchange is subject. 

9 15 U.S.C. 78mm(a)(1). 

10See Regulation ATS, 17 CFR 242.300 et seq. In 

1998, the Commission exercised its exemptive 

authority under Section 36 of the Exchange Act and 

its general authority under Section 11A of the 

Exchange Act, 15 U.S.C. 78k–1, to establish a 

regulatory framework for ‘‘alternative trading 

systems,’’ which perform many of the same 

functions as exchanges. Under this framework, an 

entity that, like an exchange, matches the orders in 

securities of multiple buyers and sellers according 

to established, non-discretionary methods is exempt 

from the definition of ‘‘exchange’’ if it instead 

registers as a broker-dealer and complies with 

Regulation ATS. Regulation ATS is designed, 

among other things, ‘‘to adopt a regulatory 

framework that addresses [the Commission’s] 

concerns without jeopardizing the commercial 

viability of these markets.’’ Regulation ATS 

Adopting Release, supra note 7, 63 FR at 70846. 

action under NYSE Arca Rules 10.4– 

10.11. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act 13 and Rule 

19d–1(c)(2) under the Act,14 that the 

proposed rule change (SR–NYSEArca– 

2009–70) be, and it hereby is, approved 

and declared effective. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–23625 Filed 9–30–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60718; File No. S7–35–08] 

Order Pursuant to Section 36 of the 

Securities Exchange Act of 1934 

Extending Temporary Exemptions 

from Sections 5 and 6 of the Exchange 

Act for Broker-Dealers and Exchanges 

Effecting Transactions in Credit 

Default Swaps 

September 25, 2009. 

On December 24, 2008, in connection 

with its efforts to facilitate the 

establishment of one or more central 

counterparties for clearing credit default 

swap (‘‘CDS’’) transactions,1 the 

Securities and Exchange Commission 

(‘‘Commission’’) granted temporary, 

conditional exemptions from the 

registration requirements under 

Sections 5 and 6 of the Securities 

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

to certain exchanges and broker-dealers 

(‘‘December Order’’).2 Subject to 

conditions specified in the December 

Order, any exchange that effects or 

reports transactions in CDS that are not 

swap agreements (‘‘non-excluded 

CDS’’) 3 and is not otherwise subject to 

the requirements under Sections 5 and 

6 of the Exchange Act,4 and the rules 

and regulations thereunder, is exempt 

from the requirement to register as a 

national securities exchange.5 In 

addition, any broker or dealer that 

effects or reports transactions in nonexcluded CDS on such an exchange is 

exempt from the prohibition on trading 

activity in Section 5 of the Exchange 

Act. The December Order expires on 

September 25, 2009. Pursuant to its 

authority under Section 36 of the 

Exchange Act,6 for the reasons 

described herein, the Commission is 

today extending the exemption granted 

in the December Order until March 24, 

2010. 

Section 5 of the Exchange Act states 

that ‘‘[i]t shall be unlawful for any 

broker, dealer, or exchange, directly or 

indirectly, to make use of the mails or 

any means or instrumentality of 

interstate commerce for the purpose of 

using any facility of an exchange * * * 

to effect any transaction in a security, or 

to report any such transactions, unless 

such exchange (1) is registered as a 

national securities exchange under 

section 6 of [the Exchange Act], or (2) 

is exempted from such registration 

* * * by reason of the limited volume 

of transactions effected on such 

exchange * * * .’’ Section 6 of the 

Exchange Act sets forth a procedure 

whereby an exchange 7 may register as 

a national securities exchange.8

Section 36 of the Exchange Act 

provides that the Commission, ‘‘by rule, 

regulation, or order, may conditionally 

or unconditionally exempt any person, 

security, or transaction, or any class or 

classes of persons, securities, or 

transactions, from any provision or 

provisions of [the Exchange Act] or of 

any rule or regulation thereunder, to the 

extent that such exemption is necessary 

or appropriate in the public interest, 

and is consistent with the protection of 

investors.’’ 9 To facilitate the 

establishment of one or more exchanges 

for non-excluded CDS, the Commission 

in the December Order exercised its 

authority under Section 36 to 

temporarily exempt any exchange, 

broker, or dealer that effects transactions 

in non-excluded CDS from the 

prohibition in Section 5 of the Exchange 

Act and (in the case of exchanges) the 

requirements in Section 6 of the 

Exchange Act and the rules and 

regulations thereunder. 

The exemptions were conditioned on 

an exchange providing notice to the 

Commission of its reliance on the 

December Order, and certain other 

requirements that generally mirror those 

applicable to alternative trading systems 

under Regulation ATS.10 As we noted at 

the time, the temporary exemptions 

from Sections 5 and 6 of the Exchange 

Act in the December Order were 

designed to allow brokers, dealers, and 

exchanges to effect transactions in nonexcluded CDS on exchanges, while 

providing an opportunity for the 

Commission to gain experience with the 


PWALKER on DSK8KYBLC1PROD with NOTICES