9290 Federal Register / Vol. 77, No. 32 / Thursday, February 16, 2012 / Notices 

9 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The purpose of the fidelity bond is to protect a 

member against certain types of losses, including, 

but not limited to, those caused by the malfeasance 

of its officers and employees, and the effect of such 

losses on the member’s capital. 

4See Securities Exchange Act Release No. 63961 

(February 24, 2011), 76 FR 11542 (March 2, 2011) 

(SR–FINRA–2010–059) (a rule change to adopt a 

rule of the National Association of Securities 

Dealers, Inc. (‘‘NASD’’) as part of the consolidation 

of the FINRA rulebook). This new rule took into 

account Incorporated NYSE Rule 319 (Fidelity 

Bonds) and its Interpretation. 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NYSEArca-2012–12. This 

file number should be included on the 

subject line if email 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 

10:00 a.m. and 3:00 p.m. Copies of the 

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– 

NYSEArca–2012–12 and should be 

submitted on or before March 8, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–3613 Filed 2–15–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66372; File No. SR– 

NASDAQ–2012–021] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by NASDAQ 

Stock Market LLC Relating to Fidelity 

Bonds 

February 10, 2012. 

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

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–42 thereunder, 

notice is hereby given that on January 

31, 2012, The NASDAQ Stock Market 

LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

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

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by NASDAQ. 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 NASDAQ Stock Market LLC 

proposes to amend NASDAQ Rule 3020 

to reflect recent changes to a 

corresponding rule of the Financial 

Industry Regulatory Authority 

(‘‘FINRA’’). 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http:// 

www.nasdaq.cchwallstreet.com, at the 

principal office of the Exchange, 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 

Exchange included statements 

concerning the purpose of, and basis for, 

the proposed rule change. The text of 

these 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 aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Many of NASDAQ’s rules are based 

on rules of FINRA (formerly the 

National Association of Securities 

Dealers (‘‘NASD’’)). Beginning in 2008, 

FINRA embarked on an extended 

process of moving rules formerly 

designated as ‘‘NASD Rules’’ into a 

consolidated FINRA rulebook. In most 

cases, FINRA has renumbered these 

rules, and in some cases has 

substantively amended them. 

Accordingly, NASDAQ also has 

initiated a process of modifying its 

rulebook to ensure that NASDAQ rules 

corresponding to FINRA/NASD rules 

continue to mirror them as closely as 

practicable. 

This proposed rule change concerns 

NASDAQ Rule 3020 entitled ‘‘Fidelity 

Bonds,’’ which follows and incorporates 

by reference former NASD Rule 3020.3

FINRA recently amended its rules to 

adopt former NASD Rule 3020, relating 

to Fidelity Bonds, with certain changes, 

into the consolidated FINRA rulebook 

as FINRA Rule 4360.4 NASDAQ Rule 

3020 provides that ‘‘[a] member 

designated to Nasdaq for oversight 

pursuant to SEC Rule 17d–1 shall 

comply with NASD Rule 3020 as if such 

Rule were part of Nasdaq’s Rules.’’ The 

Exchange proposes to amend this text to 

reference new FINRA Rule 4360, which 

replaced NASD Rule 3020. 

NASD Rule 3020(a) generally 

provides that each member required to 

join the Securities Investor Protection 

Corporation (‘‘SIPC’’) that has 

employees and that is not a member in 

good standing of one of the enumerated 

national securities exchanges must 

maintain fidelity bond coverage. FINRA 

Rule 4360 requires each member that is 

required to join SIPC to maintain 

blanket fidelity bond coverage with 

specified amounts of coverage based on 

the member’s net capital requirement, 

with certain exceptions. NASD Rule 

3020(a)(1) requires members to maintain 

a blanket fidelity bond in a form 

substantially similar to the standard 

form of Brokers Blanket Bond 

promulgated by the Surety Association 

of America. New FINRA Rule 4360 

requires members to maintain fidelity 

bond coverage that provides for per loss 

coverage without an aggregate limit of 

liability. Also, pursuant to FINRA Rule 

4360, a member’s fidelity bond must 

provide against loss and have Insuring 

Agreements covering at least the 

following: Fidelity, on premises, in 

transit, forgery and alteration, securities 

and counterfeit currency. The rule 

change modified the descriptive 

headings for these Insuring Agreements, 

in part, from NASD Rule 3020(a)(1) and 

NYSE Rule 319(d) to align them with 

the headings in the current bond forms 

available to broker-dealers. FINRA Rule 

4360 also eliminates the specific 

coverage provisions in NASD Rule 


srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 32 / Thursday, February 16, 2012 / Notices 9291 

5Members may elect to carry additional, optional 

Insuring Agreements not required by FINRA Rule 

4360 for an amount less than 100 percent of the 

minimum required bond coverage. 

6NYSE Rule 319 defines the term ‘‘substantially 

modified’’ as any change in the type or amount of 

fidelity bonding coverage, or in the exclusions to 

which the bond is subject, or any other change in 

the bond such that it no longer complies with the 

requirements of the rule. 

7Under NYSE Rule 319(b), each member 

organization may self-insure to the extent of 

$10,000 or 10% of its minimum insurance 

requirement as fixed by the NYSE, whichever is 

greater, for each type of coverage required by the 

rule. Self-insurance in amounts exceeding the above 

maximum may be permitted by the NYSE provided 

the member or member organization certifies to the 

satisfaction of the NYSE that it is unable to obtain 

greater bonding coverage, and agrees to reduce its 

self-insurance so as to comply with the above stated 

limits as soon as possible, and appropriate charges 

to capital are made pursuant to Exchange Act Rule 

15c3–1. This provision also contains identical 

language to the NASD rule regarding net worth 

deductions for subsidiaries. 

8FINRA notes that a member may elect, subject 

to availability, a deductible of less than 10 percent 

of the coverage purchased. 

9NASD Rule 3020 bases the deduction from net 

worth for an excess deductible on a firm’s 

minimum required coverage, while FINRA Rule 

4360 would base such deduction from net worth on 

coverage purchased by the member. 

3020(a)(4) and (a)(5), and NYSE Rule 

319(d)(ii)(B) and (C), and (e)(ii)(B) and 

(C), that permit less than 100 percent of 

coverage for certain Insuring 

Agreements (i.e., fraudulent trading and 

securities forgery) to require that 

coverage for all Insuring Agreements be 

equal to 100 percent of the firm’s 

minimum required bond coverage.5

Further, FINRA Rule 4360 requires 

that a member’s fidelity bond include a 

cancellation rider providing that the 

insurer will use its best efforts to 

promptly notify FINRA in the event the 

bond is cancelled, terminated or 

‘‘substantially modified.’’ Also, the rule 

change adopted the definition of 

‘‘substantially modified’’ in NYSE Rule 

319 and would incorporate NYSE Rule 

319.12’s standard that a firm must 

immediately advise FINRA in writing if 

its fidelity bond is cancelled, terminated 

or substantially modified.6 FINRA 

added supplementary material to FINRA 

Rule 4360 requiring members that do 

not qualify for a bond with per loss 

coverage without an aggregate limit of 

liability to secure alternative coverage. 

Specifically, a member that does not 

qualify for blanket fidelity bond 

coverage as required by FINRA Rule 

4360(a)(3) is required to maintain 

substantially similar fidelity bond 

coverage in compliance with all other 

provisions of the rule, provided that the 

member maintains written 

correspondence from two insurance 

providers stating that the member does 

not qualify for the coverage required by 

FINRA Rule 4360(a)(3). 

FINRA Rule 4360 requires each 

member to maintain, at a minimum, 

fidelity bond coverage for any person 

associated with the member, except 

directors or trustees of a member who 

are not performing acts within the scope 

of the usual duties of an officer or 

employee. As further detailed below, 

the rule change eliminated the 

exemption in NASD Rule 3020 for sole 

stockholders and sole proprietors. The 

rule change also increased the minimum 

required fidelity bond coverage for 

members, while continuing to base the 

coverage on a member’s net capital 

requirement. To that end, FINRA Rule 

4360 required a member with a net 

capital requirement that is less than 

$250,000 to maintain minimum 

coverage of the greater of 120 percent of 

the firm’s required net capital under 

Exchange Act Rule 15c3–1 or $100,000. 

The increase to $100,000 modifies the 

present minimum requirement of 

$25,000. 

Under the new FINRA Rule 4360, 

members with a net capital requirement 

of at least $250,000 must use a table in 

the rule to determine their minimum 

fidelity bond coverage requirement. The 

table is a modified version of the tables 

in NASD Rule 3020(a)(3) and NYSE 

Rule 319(e)(i). The identical NASD and 

NYSE requirements for members that 

have a minimum net capital 

requirement that exceeds $1 million are 

retained in the new Rule; however, the 

rule adopts the higher requirements in 

NYSE Rule 319(e)(i) for a member with 

a net capital requirement of at least 

$250,000, but less than $1 million. 

Under the new rule, the entire amount 

of a member’s minimum required 

coverage must be available for covered 

losses and may not be eroded by the 

costs an insurer may incur if it chooses 

to defend a claim. Specifically, any 

defense costs for covered losses must be 

in addition to a member’s minimum 

coverage requirements. A member may 

include defense costs as part of its 

fidelity bond coverage, but only to the 

extent that it does not reduce a 

member’s minimum required coverage 

under the rule. 

Under prior NASD Rule 3020(b), a 

deductible provision may be included 

in a member’s bond of up to $5,000 or 

10% of the member’s minimum 

insurance requirement, whichever is 

greater. If a member desires to maintain 

coverage in excess of the minimum 

insurance requirement, then a 

deductible provision may be included 

in the bond of up to $5,000 or 10% of 

the amount of blanket coverage 

provided in the bond purchased, 

whichever is greater. The excess of any 

such deductible amount over the 

maximum permissible deductible 

amount based on the member’s 

minimum required coverage must be 

deducted from the member’s net worth 

in the calculation of the member’s net 

capital for purposes of Exchange Act 

Rule 15c3–1. Where the member is a 

subsidiary of another member, the 

excess may be deducted from the 

parent’s rather than the subsidiary’s net 

worth, but only if the parent guarantees 

the subsidiary’s net capital in writing.7

FINRA Rule 4360 provides for an 

allowable deductible amount of up to 

25% of the fidelity bond coverage 

purchased by a member. Any deductible 

amount elected by the firm that is 

greater than 10% of the coverage 

purchased by the member 8 would be 

deducted from the member’s net worth 

in the calculation of its net capital for 

purposes of Exchange Act Rule 15c3–1.9

Like the NASD and NYSE rules, if the 

member is a subsidiary of another 

FINRA member, this amount may be 

deducted from the parent’s rather than 

the subsidiary’s net worth, but only if 

the parent guarantees the subsidiary’s 

net capital in writing. 

Consistent with NASD Rule 3020(c) 

and NYSE Rule 319.10, FINRA Rule 

4360 requires a member (including a 

firm that signs a multi-year insurance 

policy), annually as of the yearly 

anniversary date of the issuance of the 

fidelity bond, to review the adequacy of 

its fidelity bond coverage and make any 

required adjustments to its coverage, as 

set forth in the rule. Under FINRA Rule 

4360(d), a member’s highest net capital 

requirement during the preceding 12- 

month period, based on the applicable 

method of computing net capital (dollar 

minimum, aggregate indebtedness or 

alternative standard), is used as the 

basis for determining the member’s 

minimum required fidelity bond 

coverage for the succeeding 12-month 

period. The ‘‘preceding 12-month 

period’’ includes the 12-month period 

that ends 60 days before the yearly 

anniversary date of a member’s fidelity 

bond. This would give a firm time to 

determine its required fidelity bond 

coverage by the anniversary date of the 

bond. 

Further, FINRA Rule 4360 allows a 

member that has only been in business 

for one year and elected the aggregate 

indebtedness ratio for calculating its net 

capital requirement to use, solely for the 

purpose of determining the adequacy of 

its fidelity bond coverage for its second 

year, the 15 to 1 ratio of aggregate 

indebtedness to net capital in lieu of the 

8 to 1 ratio (required for broker-dealers 


srobinson on DSK4SPTVN1PROD with NOTICES
9292 Federal Register / Vol. 77, No. 32 / Thursday, February 16, 2012 / Notices 

10See [sic] Exchange Act Release No. 58845 (Oct. 

24, 2008), 73 FR 64379 (Oct. 29, 2008) (Order 

Approving File No. SR–NYSE–2008–46). In this 

rule filing, the role of the specialist was altered in 

certain respects and the term ‘‘specialist’’ was 

replaced with the term ‘‘Designated Market Maker.’’ 

11A one-person member (that is, a firm owned by 

a sole proprietor or stockholder that has no other 

associated persons, registered or unregistered) has 

no ‘‘employees’’ for purposes of NASD Rule 3020, 

and therefore such a firm currently is not subject 

to the fidelity bonding requirements. Conversely, a 

firm owned by a sole proprietor or stockholder that 

has other associated persons has ‘‘employees’’ for 

purposes of NASD Rule 3020, and currently is, and 

will continue to be, subject to the fidelity bonding 

requirements. 

12 15 U.S.C. 78f(b). 

13 15 U.S.C. 78f(b)(5). 

14 15 U.S.C. 78s(b)(3)(A). 

15 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. 

16For 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). 

in their first year of business) to 

calculate its net capital requirement. 

Notwithstanding the above, such 

member would not be permitted to carry 

less minimum fidelity bond coverage in 

its second year than it carried in its first 

year. 

Based in part on NASD Rule 3020(a), 

FINRA Rule 4360 exempts from the 

fidelity bond requirements members in 

good standing with a national securities 

exchange that maintain a fidelity bond 

subject to the requirements of such 

exchange that are equal to or greater 

than the requirements set forth in Rule 

4360. Additionally, consistent with 

NYSE Rule Interpretation 319/01, 

FINRA Rule 4360 continues to exempt 

from the fidelity bond requirements any 

firm that acts solely as a Designated 

Market Maker (‘‘DMM’’),10 floor broker 

or registered floor trader and does not 

conduct business with the public. 

FINRA Rule 4360 does not maintain the 

exemption in NASD Rule 3020(e) for a 

one-person firm.11 Historically, a sole 

proprietor or sole stockholder member 

was excluded from the fidelity bond 

requirements based upon the 

assumption that such firms were oneperson shops and, therefore, could not 

obtain coverage for their own acts. 

FINRA has determined that sole 

proprietors and sole stockholder firms 

can and often do acquire fidelity bond 

coverage, even though it is currently not 

required, since all claims (irrespective 

of firm size) are likely to be paid or 

denied on a facts-and-circumstances 

basis. Also, certain coverage areas of the 

fidelity bond benefit a one-person shop 

(e.g., those covering customer property 

lost in transit). 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 12 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 13

in particular, in that it is 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, by 

updating and clarifying the 

requirements governing fidelity bonds. 

The Exchange believes that the 

proposed requirements of Rule 4360, 

including, but not limited to, requiring 

each member that is required to join 

SIPC to maintain blanket fidelity bond 

coverage, increasing the minimum 

requirement fidelity bond coverage and 

maintaining a fidelity bond that 

provides for per loss coverage without 

an aggregate limit of liability promotes 

investor protection by protecting firms 

from unforeseen losses. The proposed 

amendments will conform NASDAQ 

Rule 3020 to recent changes made to a 

corresponding FINRA rule, to promote 

application of consistent regulatory 

standards. 

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 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 

operative for 30 days after the date of 

the filing, or such shorter time as the 

Commission may designate, it has 

become effective pursuant to 19(b)(3)(A) 

of the Act 14 and Rule 19b–4(f)(6) 15

thereunder. 

The Exchange has requested that the 

Commission waive the 30-day operative 

delay. The Commission believes that 

waiver of the operative delay is 

consistent with the protection of 

investors and the public interest 

because the proposed rule change 

presents no novel issues, and NASDAQ 

members are currently subject to FINRA 

Rule 4360. Therefore, the Commission 

designates the proposal operative upon 

filing.16

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 email to rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2012–021 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–NASDAQ–2012–021. This 

file number should be included on the 

subject line if email 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 


srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 32 / Thursday, February 16, 2012 / Notices 9293 

17 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. 65472 

(October 3, 2011), 76 FR 62887 (October 11, 2011) 

(SR–NYSEAmex–2011–72). See also Securities 

Exchange Act Release No. 65047 (August 5, 2011), 

76 FR 49812 (August 11, 2011) (SR–NYSEAmex– 

2011–56). The QCC permits an NYSE Amex ATP 

Holder to effect a qualified contingent trade 

(‘‘QCT’’) in a Regulation NMS stock and cross the 

options leg of the trade on the Exchange 

immediately upon entry and without order 

exposure if the order is for at least 1,000 contracts, 

is part of a QCT, is executed at a price at least equal 

to the national best bid or offer, as long as there are 

no Customer orders in the Exchange’s Consolidated 

Book at the same price. 

4The exclusion of Customer-to-Customer QCC 

trades from the Floor Broker rebate will remain. See 

Securities Act Release No. 65943 (December 13, 

2011), 76 FR 78704 (December 19, 2011) (SR– 

NYSEAmex–2011–95). 

5Floor Brokers are required by NYSE Amex Rule 

955NY to have systematized orders prior to 

representing them in open outcry. Using the same 

Electronic Order Capture System, Floor Brokers will 

be able to enter QCC orders for validation by the 

Exchange matching engines and potential 

execution. 

6The International Securities Exchange (‘‘ISE’’) 

offers PRECISE TRADE as a means for users to enter 

orders and Chicago Board Options Exchange has a 

similar front-end order entry system called PULSE. 

Such systems do not require users to develop their 

own internal front-end order entry systems and may 

provide savings to users in terms of development 

time and costs. 

7See Securities Act Release No. 66169 (January 

17, 2011) (SR–ISE–2012–01) (notice of filing and 

immediate effectiveness of a proposed rule change, 

including an increase in ISE rebate of up to $.10 per 

contract for qualifying executed QCC orders), and 

NASDAQ OMX PHLX fee schedule dated January 

18, 2012, page 5 (describing a rebate of up to $.10 

per contract for qualifying executed QCC Orders), 

available at http://www.nasdaqtrader.com/content/ 

marketregulation/membership/phlx/feesched.pdf. 

8 15 U.S.C. 78f(b). 

9 15 U.S.C. 78f(b)(4). 

a.m. and 3 p.m. Copies of the 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– 

NASDAQ–2012–021 and should be 

submitted on or before March 8, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–3612 Filed 2–15–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66376; File No. SR– 

NYSEAmex–2012–05] 

Self-Regulatory Organizations; NYSE 

Amex LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Amending an Existing 

Rebate Relating to Qualified 

Contingent Cross Orders That Are 

Entered and Executed Through the 

Exchange Systems 

February 10, 2012. 

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 January 

30, 2012, NYSE Amex LLC (the 

‘‘Exchange’’ or ‘‘NYSE Amex’’) 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 selfregulatory 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 an 

existing rebate relating to Qualified 

Contingent Cross (‘‘QCC’’) orders that 

are entered and executed through the 

Exchange systems. 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 

The purpose of the proposal is to 

increase a rebate for Floor Brokers who 

enter QCC orders that subsequently 

execute.3 The Exchange intends to 

increase the existing rebate of $.03 per 

executed contract to $.07 per executed 

contract.4

The rebate is credited to the executing 

Floor Broker. The Exchange notes that 

the terms of a QCC order are negotiated 

and agreed to prior to being brought to 

an exchange for possible execution. In 

bringing a QCC order to the Exchange 

for execution, permit holders have two 

primary means of doing so. They can 

configure their systems to deliver the 

QCC order to the Exchange matching 

engines for validation and execution. 

Alternatively they can utilize the 

services of another ATP Holder acting as 

a Floor Broker. In turn, the Floor Broker 

who is in receipt of such an order can 

enter the order through an Exchangeprovided system 5 to be delivered to the 

Exchange matching engine for 

validation and potential execution. The 

Exchange does not offer a front-end for 

order entry, unlike some of the 

competing exchanges.6 The Exchange 

expects that the increased rebate offered 

to executing Floor Brokers will allow 

them to price their services at a level 

that will enable them to attract QCC 

order flow from participants who would 

otherwise utilize an existing front-end 

order entry mechanism offered by the 

Exchange’s competitors or floor brokers 

on other exchanges, instead of incurring 

the cost in time and money to develop 

their own internal systems to be able to 

deliver QCC orders directly to the 

Exchange systems. To the extent that 

Floor Brokers are able to attract these 

QCC orders, they will gain important 

information that will allow them to 

solicit the parties to the QCC orders for 

participation in other trades, which will 

in turn benefit all other Exchange 

participants through the additional 

liquidity and price discovery that may 

occur as a result. The proposed change 

is also a competitive response to recent 

pricing changes at competing 

exchanges.7 The proposed change will 

be operative on February 1, 2012. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6(b) 8 of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’), in general, and Section 6(b)(4) 9

of the Act, in particular, in that it is 

designed to provide for the equitable 

allocation of reasonable dues, fees, and 

other charges among its members and 

other persons using its facilities. 

The Exchange believes the proposed 

increase from $.03 per contract to $.07 

per contract rebate for Floor Brokers 

who enter QCC orders that execute is 

reasonable because it will allow Floor 

Brokers the opportunity to compete for 

QCC orders that would otherwise be 


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