Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices 51447 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

4For purposes of this filing, the term 

‘‘Exchanges’’ refers collectively to BATS Exchange, 

Inc., BATS Y–Exchange, Inc., NASDAQ OMX BX, 

Inc., Chicago Board Options Exchange, Inc., 

Chicago Stock Exchange, Inc., EDGA Exchange, 

Inc., EDGX Exchange, Inc., International Securities 

Exchange LLC, The NASDAQ Stock Market LLC, 

New York Stock Exchange LLC, NYSE Amex LLC, 

NYSE Arca, Inc., National Stock Exchange, Inc., and 

NASDAX [sic] OMX PHLX LLC. 

5Rule 4120(a)(11). The pauses under Rule 

4120(a)(11) occur when a security’s price moves by 

the applicable percentage within a five minute 

period between 9:45 a.m. and 3:35 p.m., or in the 

case of an early scheduled close, 25 minutes before 

the close of trading. Such pauses last for five 

minutes. At the conclusion of the pause period, the 

security is opened pursuant to the Halt Cross 

process under Rule 4753. 

6Securities Exchange Act Release Nos. 62252 

(June 10, 2010), 75 FR 34186 (June 16, 2010) (File 

Nos. SR–BATS–2010–014; SR–EDGA–2010– 01; 

SR–EDGX–2010–01; SR–BX–2010–037; SR–ISE– 

2010–48; SR–NYSE–2010–39; SR–NYSEAmex– 

2010–46; SR–NYSEArca–2010–41; SR–NASDAQ– 

2010–061; SR–CHX–2010–10; SR–NSX–2010–05; 

and SR–CBOE–2010–047); 62251 (June 10, 2010), 

75 FR 34183 (June 16, 2010) (SR–FINRA–2010– 

025). 

7See e.g.,Securities Exchange Act Release Nos. 

62884 (September 10, 2010), 75 FR 56618 

(September 16, 2010) (File Nos. SR–BATS–2010– 

018; SR–BX–2010–044; SR–CBOE–2010–065; SR– 

CHX–2010–14; SR–EDGA–2010–05; SR–EDGX– 

2010–05; SR–ISE–2010–66; SR–NASDAQ–2010– 

079; SR–NYSE–2010–49; SR–NYSEAmex–2010–63; 

SR–NYSEArca–2010–61; and SR–NSX–2010–08); 

and Securities Exchange Act Release No. 62883 

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

2010) (SR–FINRA–2010–033). 

8Securities Exchange Act Release No. 62886 

(September 16, 2010), 75 FR 56613 (September 16, 

2010) (File Nos. SR–BATS–2010–016; SR–BX– 

2010–040; SR–CBOE–2010–056; SR–CHX–2010–13; 

SR–EDGA–2010–03; SR–EDGX–2010–03; SR–ISE– 

2010–62; SR–NASDAQ–2010–076; SR–NSX–2010– 

07; SR–NYSE–2010–47; SR–NYSEAmex-2010–60; 

and SR–NYSEArca–2010–58). 

9Pursuant to Rule 10(c)(1), a security with a 

Reference Price of greater than zero and up to an 

including $25 is subject to a 10% threshold; a 

security with a Reference Price of greater than $25 

and up to and including $50 is subject to a 5% 

threshold; and a security with a Reference Price of 

greater than $50 is subject to a 3% threshold. 

10Rule 10(c)(4). 

11Securities Exchange Act Release No. 64735 

(June 23, 2011), 76 FR 38243 (June 29, 2011) (File 

Nos. SR–BATS–2011–016; SR–BYX–2011–011; SR– 

BX–2011–025; SR–CBOE–2011–049; SR–CHX– 

2011–09; SR–EDGA–2011–15; SR–EDGX–2011–14; 

SR–FINRA–2011–023; SR–ISE–2011–028; SR– 

NASDAQ–2011–067; SR–NYSE–2011–21; SR– 

NYSEAmex–2011–32; SR–NYSEArca–2011–26; SR– 

NSX–2011–06; SR–Phlx–2011–64). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65115; File No. SR–CHX– 

2011–22] 

Self-Regulatory Organizations; 

Chicago Stock Exchange, Inc.; Notice 

of Filing of Proposed Rule Change To 

Amend Article 20, Rule 10, Governing 

Clearly Erroneous Executions 

August 11, 2011. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on August 

10, 2011, the Chicago Stock Exchange, 

Inc. (‘‘CHX’’ or the ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the CHX. CHX has 

filed this proposal pursuant to Exchange 

Act Rule 19b–4(f)(6) 3 which is effective 

upon filing with the Commission. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

CHX proposes to amend Article 20, 

Rule 10, governing clearly erroneous 

executions, so that the rule will 

continue to operate in the same manner 

after changes to the single stock trading 

pause process are effective. The text of 

this proposed rule change is available 

on the Exchange’s Web site at (http:// 

www.chx.com) and in 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 

CHX included statements concerning 

the purpose of and basis for the 

proposed rule changes and discussed 

any comments it received regarding the 

proposal. The text of these statements 

may be examined at the places specified 

in Item IV below. The CHX 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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background 

The Exchanges4 and FINRA, in 

consultation with the Commission, have 

made changes to their respective rules 

in a concerted effort to strengthen the 

markets after the severe market 

disruption that occurred on May 6, 

2010. One such effort by the Exchanges 

and FINRA was to adopt a uniform 

trading pause process during periods of 

extraordinary market volatility as a pilot 

in S&P 500 Index stocks (‘‘Pause 

Pilot’’),5 approved by the Commission 

on June 10, 2010.6 On September 10, 

2010, the Commission approved the 

Exchanges’ and FINRA’s proposals to 

add the securities included in the 

Russell 1000 Index and specified ETPs 

to the Pause Pilot.7 On September 10, 

2010, the Commission also approved 

changes proposed by the Exchanges to 

amend certain of their respective rules 

to set forth clearer standards and curtail 

their discretion with respect to breaking 

erroneous trades.8 The changes, among 

other things, provided uniform 

treatment of clearly erroneous execution 

reviews in the event of transactions that 

result in the issuance of an individual 

stock trading pause pursuant to the 

Pause Pilot on the listing market and 

those that occur up to the time the 

trading pause message is received by the 

other markets from the single plan 

processor responsible for consolidation 

and dissemination of information for the 

security (‘‘Latency Trades’’). 

As part of the changes to the clearly 

erroneous process under Article 20, 

Rule 10, CHX replaced existing Rule 

10(c)(4) with all new text to provide 

clarity in the clearly erroneous process 

when a Pause Pilot trading pause is 

triggered. Pursuant to Rule 10(c) (4), 

Latency Trades will be broken by the 

exchange if they exceed the applicable 

percentage from the Reference Price, as 

noted in the table found under Rule 

10(c)(1).9 The Reference Price, for 

purposes of Rule 10(c)(4), is the price 

that triggered a trading pause pursuant 

to the Pause Pilot (the ‘‘Trading Pause 

Trigger Price’’). As such, Latency Trades 

that occur on CHX would be broken by 

the exchange pursuant to Rule 10(c)(4) 

if the transaction occurred at either 

three, five or ten percent above the 

Trading Pause Trigger Price.10

On June 23, 2011, the Commission 

approved a joint proposal to expand the 

respective Pause Pilot rules of the 

Exchanges and FINRA to include all 

remaining NMS stocks (‘‘Phase III 

Securities’’).11 The new pilot rules, 

which will be implemented on August 

8, 2011, not only expand the application 

of the Pause Pilot, but also apply larger 

percentage moves that trigger a pause to 

the Phase III Securities. CHX amended 

its Pause Pilot rule, Rule 2(e), by adding 

three new subparagraphs to address the 

treatment of the Phase III Securities. The 

rule applicable to the original Pause 

Pilot securities was placed in new Rule 

2(e)(i). The rules applicable to the Phase 

III Securities were placed in new Rules 

2(e)(ii) and (iii). A pause under Rule 

2(e)(ii) is triggered by a 30 percent price 

move within a five minute period in a 

Phase III Security that had a closing 

price on the previous trading day of $1 

or more. A pause under Rule 2(e)(iii) is 

triggered by a 50 percent price move 

within a five minute period in a Phase 

mstockstill on DSK4VPTVN1PROD with NOTICES

51448 Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices 

12 Id. 

13CHX notes that the Exchanges are filing similar 

proposals to make the changes proposed herein. 

14 15 U.S.C. 78f(b)(5). 

15 15 U.S.C. 78k–L(a)(1). 

III Security that had a closing price on 

the previous trading day of less than $1. 

If no prior day closing price is available, 

the last sale reported to the 

Consolidated Tape on the previous 

trading day is used. 

The Issue 

The recently-approved changes to the 

Pause Pilot will have the unintended 

effect of removing the Phase III 

Securities from the normal clearly 

erroneous process and potentially result 

in unfair outcomes in the face of severe 

volatility in such securities. Phase III 

Securities are currently subject to the 

clearly erroneous process under Rules 

10(c)(1)–(3), which apply to all 

securities except the current Pause Pilot 

securities subject to a pause. For 

purposes of transactions in securities 

not involving Pause Pilot securities, or 

transactions involving Pause Pilot 

securities that occur when there is not 

a pause pursuant to the Pause Pilot, the 

Reference Price is the consolidated last 

sale price immediately prior to the 

execution(s) under review, subject to 

certain exceptions.12 As noted above, 

the Trading Pause Trigger Price is used 

as the Reference Price when a Pause 

Pilot pause is in effect. As a 

consequence, under the current rules a 

Latency Trade is subject to the clearly 

erroneous thresholds based on the 

Trading Pause Trigger Price, which 

represents a ten percent or greater move 

in the transacted price of the security in 

a five minute period. 

Under the new Pause Pilot rules, a 

Latency Trade in a Phase III Security 

occurs only after either a 30 or 50 

percent (or greater) move in the 

transacted price of the security in a five 

minute period. As a result, a member 

firm that trades in a Phase III Security 

that triggers a clearly erroneous 

threshold of three, five or ten percent 

from the Reference Price, yet falls below 

the Pause Pilot trigger of either 30 or 50 

percent, would be able to avail 

themselves of a clearly erroneous 

review. A similarly situated member 

firm that transacts in the same security 

as a Latency Trade at a price equal to 

or greater than the Phase III Security 

thresholds, yet less than the clearly 

erroneous thresholds under Rule 

10(c)(1), would not be able to avail 

themselves of the clearly erroneous 

process. Another member firm that 

transacts in the same security as a 

Latency Trade that exceeds three, five or 

ten percent from the Trading Pause 

Trigger Price would automatically 

receive clearly erroneous relief. CHX 

believes that this would be an 

inequitable result and an arbitrary 

application of the clearly erroneous 

process. Specifically, CHX believes that, 

since the 30 and 50 percent triggers of 

the Pause Pilot are substantially greater 

than the 10 percent threshold of the 

original Pause Pilot, the Phase III 

Securities should remain under the 

current clearly erroneous process of 

Rules 10(c)(1)–(3). 

Applying the clearly erroneous 

process under Rules 10(c)(1)–(3) to the 

Phase III Securities would allow CHX to 

review all transactions that exceed the 

normal clearly erroneous thresholds and 

Reference Price, and, importantly, avoid 

arbitrary selection of ‘‘winners’’ and 

‘‘losers’’ in the face of severe volatile 

moves in a security of 30 or 50 percent 

over a five minute period. For example, 

A member firm that trades in a security 

subject to Rule 2(e)(ii) or (iii) that 

triggers a clearly erroneous threshold of 

three, five or ten percent, yet falls below 

the Pause Pilot trigger threshold trading 

at 29 percent from the prior day’s 

closing price, would be potentially 

entitled to a clearly erroneous break 

pursuant Rule 10(c)(1). Should trading 

in that same stock trigger a trading 

pause at a price of 30 or 50 percent 

greater than the prior day’s close, the 

member firm would not be entitled to a 

clearly erroneous trade break unless that 

trade exceeded three, five or ten percent 

beyond the price that triggered the 

pause. This scenario causes an inequity 

among a group of member firms that 

have transactions in the Phase III 

Securities falling between the three, five 

and ten percent thresholds from the 

Reference Price under the normal Rule 

10(c)(1) clearly erroneous process and 

the Pause Pilot clearly erroneous 

triggers of three, five or ten percent 

away from the Trading Pause Trigger 

Price. Such member firms would not be 

provided relief under the clearly 

erroneous rules merely due to the 

imposition of a Pause Pilot halt, 

notwithstanding that other member 

firms with transactions that occur at the 

same rolling five minute percentage 

difference. CHX believes a better 

outcome is to afford all members 

transacting in Phase III Securities the 

opportunity of having such trades 

reviewed. 

Summary 

The expansion of the Pause Pilot to 

the Phase III Securities will have the 

unintended consequence of setting the 

point at which a clearly erroneous 

transaction occurs once a Pause Pilot 

pause is initiated far beyond the triggers 

applied prior to the expansion, which 

will, in turn, prevent certain market 

participants from availing themselves of 

the clearly erroneous rules, 

notwithstanding that other similarly 

situated participants are able to do so. 

CHX believes that this would be an 

arbitrary application of the clearly 

erroneous process in a manner that is 

unfair and not consistent with the spirit 

and purpose of the rule. Accordingly, 

CHX is proposing to amend Rules 

10(c)(1)–(4) to specify that Rule 10(c)(4) 

applies only to the current securities of 

Pause Pilot, as found under Rule 

2(e)(i).13

2. Statutory Basis 

The statutory basis for the proposed 

rule change is Section 6(b)(5) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),14 which requires the rules of an 

exchange 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 also is designed to support the 

principles of Section 11A(a)(1) 15 of the 

Act in that it seeks to assure fair 

competition among brokers and dealers 

and among exchange markets. CHX 

believes that the proposed rule meets 

these requirements in that it promotes 

transparency and uniformity across 

markets concerning decisions to break 

erroneous trades, yet also ensures fair 

application of the process so that 

similarly situated member firms are 

provided the same opportunity of a 

clearly erroneous review. CHX notes 

that the changes proposed herein will in 

no way interfere with the operation of 

the Pause Pilot process, as amended. 

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 either 

solicited or received. 

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 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Notices 51449 

16 15 U.S.C. 78s(b)(3)(A). 

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

19b–4(f)(6)(iii) requires that a self-regulatory 

organization submit to the Commission written 

notice of its intent to file the proposed rule change, 

along with a brief description and text of the 

proposed rule change, at least five business days 

prior to the filing of the proposed rule change, or 

such shorter time as designated by the Commission. 

The Commission is waiving the five day written 

notice requirement in this case. Therefore, the 

Commission notes that the Exchange has satisfied 

this requirement. 

18For 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). 19 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. 64506 

(May 17, 2011), 76 FR 29806 (‘‘Notice’’). 

4See Letters to the Commission, from Ronald 

Russo, GLX, Inc., dated May 18, 2011 (‘‘GLX 

Letter’’); Bryan Degnan, Taylor Rafferty Associates, 

dated May 19, 2011 (‘‘Rafferty Letter’’); Jennifer 

Kaminsky, dated May 19, 2011; Anonymous, dated 

May 19, 2011 (‘‘Anonymous Letter’’); Todd Allen, 

dated May 19, 2011 (‘‘Allen Letter’’); Brian Rivel, 

President, Rivel Research Group, dated May 20, 

2011 (‘‘Rivel Letter’’); Jerry Falkner, May 22, 2011 

(‘‘Falkner Letter’’); Enzo Villani, President, MZ 

North America, dated June 6, 2011 (‘‘MZ Letter’’); 

John Fairir, dated June 7, 2011 (‘‘Fairir Letter’’); 

Michael Pepe, CEO, PrecisionIR Group, dated June 

7, 2011 (‘‘PrecisionIR Letter’’); Michael O’Connell, 

Director IR Solutions, SNL Financial, dated June 10, 

2011 (‘‘SNL Letter’’); Dominic Jones, President, IR 

Web Reporting International, Inc., dated June 15, 

2011 (‘‘IR Web Reporting Letter’’); Darrell Heaps, 

CEO, Q4 Web System, dated June 16, 2011 (‘‘Q4 

Letter’’); Dominic Jones, President, IR Web 

Reporting International, Inc., dated June 29, 2011 

(‘‘IR Web Reporting Letter 2’’); e-mails to Robert 

Cook, Director, Division of Trading and Markets 

and David Shillman, Associate Director, Division of 

Trading and Markets, from Patrick Healy, CEO, 

Issuer Advisory Group, LLC, dated June 26, 2011 

and June 28, 2011 (both e-mails indicating that the 

Issuer Advisory Group would be filing a comment 

letter to the proposed rule change); and letter from 

Patrick Healy, CEO, Issuer Advisory Group, LLC, 

dated June 30, 2011 (‘‘Issuer Advisory Letter’’). 

5See Letter to Elizabeth M. Murphy, Secretary, 

Commission, from Janet L. McGinness, Senior Vice 

President—Legal and Corporate Secretary, NYSE, 

Continued 

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 16 and Rule 19b– 

4(f)(6)(iii) thereunder.17 The Exchange 

has asked the Commission to 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 is consistent 

with the protection of investors and the 

public interest because such waiver will 

allow the clearly erroneous rules to 

continue to operate as they did prior to 

the effectiveness of the Pause Pilot 

expansion to Phase III Securities so that 

similarly situated member firms are 

provided the same opportunity of a 

clearly erroneous review. Accordingly, 

the Commission waives the 30-day 

operative delay requirement and 

designates the proposed rule change as 

operative upon filing with the 

Commission.18

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend 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–CHX–2011–22 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–CHX–2011–22. 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 

publicly available. All submissions 

should refer to File Number SR–CHX– 

2011–22 and should be submitted on or 

before September 8, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–21026 Filed 8–17–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–65127; File No. SR–NYSE– 

2011–20] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Order 

Granting Approval of Proposed Rule 

Change To Add New Section 907.00 to 

the Listed Company Manual that Sets 

Forth Certain Complimentary Products 

and Services That Are Offered to 

Currently and Newly Listed Issuers 

August 12, 2011. 

I. Introduction 

On May 5, 2011, the New York Stock 

Exchange LLC (‘‘NYSE’’ 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 to amend the Listed Company 

Manual (‘‘Manual’’) setting forth certain 

complimentary products and services 

offered to currently and newly listed 

issuers. The proposed rule change was 

published in the Federal Register on 

May 23, 2011.3 The Commission 

received seventeen comments from 14 

commenters on the proposal.4 NYSE 

submitted a letter in response to the 

comments.5 On July 5, 2011, the 

Commission extended the time period 

mstockstill on DSK4VPTVN1PROD with NOTICES