22032 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Notices 

86See, e.g., ISE Rule 722(b)(2); and NYSE Amex 

Rule 980NY, Commentary .03(d). 

87See CBOE Rule 6.53C, Interpretation and Policy 

.06(a)(1). As noted above, CBOE plans to file a 

separate proposal that will further describe booth 

routing parameters and order management terminal 

operations. See note 39, supra. 

88See id. 

89See CBOE Rule 6.53C, Interpretation and Policy 

.06(a)(2). This system feature will not be applicable 

to a resting stock-option order that becomes 

marketable against another stock-option order(s). 

90See CBOE Rule 6.53C, Interpretation and Policy 

.06(a). 

91See CBOE Rule 6.53C, Interpretation and Policy 

.08(a)(5) and Notice, 77 FR at 10030—10031. 

92See CBOE Rule 6.53C, Interpretation and Policy 

.04(b). CBOE will calculate the derived net market 

for a stock-option order using CBOE’s best bid or 

offer in the individual option series leg(s) and the 

NBBO in the stock leg. 

93 15 U.S.C. 78s(b)(2). 

94 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. 66421 

(February 17, 2012), 77 FR 11181 (‘‘Notice’’). 

options exchanges.86 Accordingly, the 

Commission finds that the priority 

requirements for stock-option orders in 

CBOE Rule 6.53C, Commentary .06(b) 

are consistent with the Act. 

D. Provisions Applicable to Marketable 

Stock-Option Orders 

To the extent that a marketable stockoption order cannot be executed in full 

in, or in a permissible ratio, after it is 

routed to COB or following a COA, any 

part of the order that can execute will 

execute and the remaining balance will 

be routed on a class-by-class basis to 

PAR or, at the order entry firm’s 

discretion, to the order entry firm’s 

booth.87 If the order is not eligible to 

route to PAR, the remaining balance 

will be cancelled.88 The Commission 

believes that these provisions are 

consistent with the Act because they 

establish procedures for handling the 

remaining balance of a marketable 

stock-option order that cannot be 

executed in full or in a permissible 

ratio. 

In addition, to the extent that a stockoption order resting in COB becomes 

marketable against the derived net 

market, the full order will be subject to 

a COA.89 The Commission believes that 

this provision is consistent with the Act 

because it could facilitate the execution 

of a stock-option order that is 

marketable against the derived net 

market, but that would not execute 

against the derived net market because 

stock-option orders generally will not 

execute against leg market interest. 

E. Price Check Parameters 

The stock-option derived net market 

price check parameter in CBOE Rule 

6.53C, Interpretation and Policy .08(f) 

will prevent the automatic execution of 

a stock-option order following a COA if 

the execution would not be within the 

acceptable derived net market that 

existed at the start of the COA. The 

Commission believes that this price 

check parameter is consistent with the 

Act because it could help to prevent the 

automatic execution of stock-option 

orders at extreme or potentially 

erroneous prices. The Commission 

believes that it is reasonable to use 

CBOE’s best bid and offer for the 

individual series legs to calculate the 

acceptable derived net market for the 

option leg(s) of a stock-option order 

because the option leg(s) would not be 

permitted to trade at a price that is 

inferior to CBOE’s best bid or offer. The 

Commission believes that using the 

NBBO for the stock, plus or minus an 

acceptable tick distance, to determine 

the acceptable derived net market for 

the stock leg of a stock-option order will 

provide CBOE with flexibility in setting 

this parameter. The Commission notes 

that a stock-option order submitted to 

the Hybrid System must comply with 

the QCT Exemption.90 The stock leg of 

a stock-option order that complies with 

the QCT Exemption would be permitted 

to trade at a price that is outside the 

NBBO for the stock. 

CBOE also proposes to extend the 

existing individual series leg width 

price check parameter in CBOE Rule 

6.53C, Interpretation and Policy 

.08(a)(i), which currently applies to 

complex orders, to the individual series 

legs of market and marketable limit 

stock-option orders.91 This price check 

parameter prevents the automatic 

execution of a marketable complex 

order when the width between CBOE’s 

best bid and offer in any individual 

series leg is not within an acceptable 

price range. The Commission believes 

that it is consistent with the Act for 

CBOE to have the ability to apply this 

price check parameter to stock-option 

orders, in addition to complex orders. 

F. Extension of the Re-COA Feature to 

Stock-Option Orders 

CBOE proposes to amend CBOE Rule 

6.53C, Interpretation and Policy .04(b) 

to apply its ‘‘re-COA’’ feature to stockoption orders resting at the top of the 

COB. For classes in which COA is 

activated, a non-marketable stock-option 

order resting at the top of the COB may 

be automatically subject to COA if the 

order is within a number of ticks away 

from current derived net market.92 The 

Commission believes that applying the 

‘‘re-COA’’ feature to stock-option orders 

could facilitate the execution of stockoption orders by providing an 

opportunity for a stock-option resting at 

the top of the COB to be executed 

automatically. Accordingly, the 

Commission finds that the provision is 

consistent with the Act. 

G. Rule Text Reorganizations 

The Commission believes that the 

proposed changes to reorganize, 

consolidate, and simplify CBOE Rule 

6.53C, Interpretation and Policy .06 are 

consistent with the Act. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,93 that the 

proposed rule change (SR–CBOE–2012– 

005) is approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.94

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–8783 Filed 4–11–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66758; File No. SR–NYSE– 

2012–05] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Order 

Granting Approval of a Proposed Rule 

Change Amending NYSE Rule 476A To 

Update its ‘‘List of Exchange Rule 

Violations and Fines Applicable 

Thereto Pursuant to Rule 476A’’ 

April 6, 2012. 

I. Introduction 

On February 7, 2012, New York Stock 

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

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 NYSE Rule 476A to 

update its ‘‘List of Exchange Rule 

Violations and Fines Applicable Thereto 

Pursuant to Rule 476A.’’ The proposed 

rule change was published for comment 

in the Federal Register on February 24, 

2012.3 The Commission received no 

comment letters on the proposed rule 

change. This order approves the 

proposed rule change. 

II. Description 

By way of background, NYSE Rule 

476 governs disciplinary proceedings 

involving charges against members, 

member organizations, principal 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Notices 22033 

4NYSE Rule 476A(a). 

5 In addition to these technical changes to the 

Rule 476A List, which are described below, the 

proposed rule change would amend Rule 476A(a) 

by replacing the term ‘‘allied member’’ with the 

term ‘‘principal executive,’’ to be consistent with a 

prior rule change eliminating the category of ‘‘allied 

member’’ on the Exchange. See Securities Exchange 

Act Release No. 58549 (September 15, 2008), 73 FR 

54444 (September 19, 2008) (SR–NYSE–2008–80). 

See also NYSE Rule 476, which uses the term 

‘‘principal executive.’’ 

6For a more detailed description of these 

proposed non-substantive changes, see Notice, 

supra note 3. 

7NYSE Rule 104 currently operates on a pilot 

basis, set to end on July 31, 2012. The Exchange 

stated its belief that the Rule 476A List should 

reference those rules that are currently operational, 

even if operating on a pilot basis. 

8See Securities Exchange Act Release No. 58845 

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

(SR–NYSE–2008–46). 

9See Notice, supra note 3 at 11182–83 for a full 

description of the elements of Rule 104 that, under 

the proposal, would be included in the Minor Rule 

Violation Plan. The Exchange states that other 

elements of Rule 104 (i.e., Rule 104(j) and 

supplementary material .05 and .10) are not related 

to DMM obligations, but rather reflect operational 

aspects of the Exchange. See id. at note 11. The 

Exchange notes that, in a separate filing, it has 

proposed to delete NYSE Rule 104(a)(6). See 

Securities Exchange Act Release No. 65736 

(November 10, 2011), 76 FR 71399 (November 17, 

2011) (SR–NYSE–2011–56). The Commission 

instituted proceedings to determine whether to 

disapprove SR–NYSE–2011–56. See Securities 

Exchange Act Release No. 66397 (February 15, 

2012), 77 FR 10586 (February 22, 2012). 

10See Securities Exchange Act Release No. 63255 

(November 5, 2010), 75 FR 69484 (November 12, 

2010) (SR–NYSE–2010–69). 

executives, approved persons, 

employees, or others for violations of 

the federal securities laws, Exchange 

rules and agreements with the 

Exchange, and other offenses listed in 

the rule. 

NYSE Rule 476A, ‘‘Imposition of 

Fines for Minor Violation(s) of Rules,’’ 

provides that, in lieu of commencing a 

disciplinary proceeding under Rule 476, 

the Exchange may (subject to specified 

requirements) ‘‘impose a fine, not to 

exceed $5,000, on any member, member 

organization, allied member, approved 

person, or registered or non-registered 

employee of a member or member 

organization, for any violation of a rule 

of the Exchange, which violation the 

Exchange shall have determined is 

minor in nature.’’ 4 The provisions of 

Rule 476A are known as the Exchange’s 

Minor Rule Violation Plan. 

According to the Exchange, the 

‘‘summary fines’’ under Rule 476A 

provide a meaningful sanction for rule 

violations when the violation calls for 

stronger discipline than an admonition 

or cautionary letter, but the facts and 

circumstances of the violation do not 

warrant initiation of a formal 

disciplinary proceeding under Rule 476. 

A ‘‘List of Exchange Rule Violations and 

Fines Applicable Thereto Pursuant to 

Rule 476A’’ (‘‘Rule 476A List’’) is 

appended as Supplementary Material to 

the rule. 

In the instant proposal, the NYSE 

proposes to amend the Rule 476A List 

to: (i) Make technical, non-substantive 

changes to conform the list to 

previously-approved changes in 

Exchange rules,5 (ii) update the rules 

relating to conduct by Designated 

Market Makers (‘‘DMMs’’), and (iii) add 

rules relating to conduct by DMMs, as 

follows: 

Proposed Non-Substantive Changes to 

Rule 476A List 

The Exchange proposes to update the 

Rule 476A List to conform it to 

approved changes to Exchange rules by 

updating the titles of certain rules, 

updating references to rules that have 

been renumbered or harmonized with a 

Financial Industry Regulatory Authority 

(‘‘FINRA’’) rule, deleting references to 

rules that have been deleted, updating 

the descriptions of rules that have been 

amended, and fixing a typographical 

error.6

Proposed Updates to Rule 476A List for 

DMM Conduct Rules 

The current Rule 476A List includes 

certain specific rules that govern DMM 

conduct (e.g., NYSE Rules 104(a)(1)(A) 

and 104.10), as well as a category 

designated as ‘‘Exchange policies 

regarding procedures to be followed in 

delayed opening situations,’’ which 

refers to policies relating to DMM 

conduct included in NYSE Rule 123D. 

The Exchange proposes generally to 

update the Rule 476A List with current 

rules governing DMM conduct. In 

particular, under the proposed rule 

change, the list would be amended to 

include, more expansively, ‘‘Rule 104 

requirements for the dealings and 

responsibilities of DMMs’’ and ‘‘Rule 

123D requirements for DMMs relating to 

openings, re-openings, delayed 

openings, trading halts, and tape 

indications.’’ Thus, additional elements 

of Rules 104 and 123D would be 

included in the Minor Rule Violation 

Plan, as further detailed below. 

Rule 104 

NYSE Rule 104 requires DMMs 

registered in one or more securities 

traded on the Exchange to engage in a 

course of dealings for their own account 

to assist in the maintenance of a fair and 

orderly market, insofar as reasonably 

practicable, by contributing liquidity 

when lack of price continuity and 

depth, or disparity between supply and 

demand exists or is reasonably to be 

anticipated.7

The Rule 476A List currently includes 

the following elements of Rule 104: 

• Rule 104(a)(1)(A), which requires 

DMMs to maintain a bid or an offer at 

the National Best Bid and National Best 

Offer (‘‘inside’’) at least 15% of the 

trading day for securities in which the 

DMM unit is registered that have a 

consolidated average daily volume of 

less than one million shares, and at least 

10% for securities in which the DMM 

unit is registered that have a 

consolidated average daily volume 

equal to or greater than one million 

shares; and 

• Rule 104.10, which is described in 

the Rule 476A List as relating to 

‘‘Functions of DMM.’’ This description 

does not relate to the rule currently 

denominated as Rule 104.10, which was 

adopted when the Exchange adopted the 

New Market Model,8 but to a former 

rule relating to certain subject matters 

that, according to the Exchange, 

continue to be covered in the current 

Rule 104. 

The proposed rule change would, 

instead, include a single reference in the 

Rule 476A List identifying ‘‘Rule 104 

requirements for the dealings and 

responsibilities of DMMs’’ as subject to 

the Minor Rule Violation Plan. The 

proposed rule change would have the 

effect of adding to the Rule 476A List 

Rules 104(b), (c), (d), and (e),9 as well 

as Rule 104(a)(1)(B), the rule that 

governs the DMM’s new pricing 

obligations, which were implemented 

by all equities markets on December 6, 

2010.10

Rule 123D 

The Rule 476A List currently provides 

that ‘‘violations of Exchange policies 

regarding procedures to be followed in 

delayed opening situations’’ are eligible 

for summary fines under the Minor Rule 

Violation Plan. According to the 

Exchange, such Exchange policies are 

codified in Rule 123D. Accordingly, the 

Exchange proposes to delete ‘‘violations 

of Exchange policies regarding 

procedures to be followed in delayed 

opening situations’’ and replace it with 

‘‘Rule 123D requirements for DMMs 

relating to openings, re-openings, 

delayed openings, trading halts, and 

tape indications.’’ The effect of this 

change would be to include other 

requirements of DMMs set forth in Rule 

123D—relating to openings, reopenings, trading halts, and tape 

indications—in the Minor Rule 

Violation Plan. 

mstockstill on DSK4VPTVN1PROD with NOTICES

22034 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Notices 

11 In approving this proposed rule change, the 

Commission notes that it has considered the 

proposed rule’s impact on efficiency, competition, 

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

12 15 U.S.C. 78f(b)(5). 

13 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(6). 

14The Commission believes that it is appropriate 

to include in NYSE Rule 476A references to rules 

that are currently operating on a pilot basis. 

15See NYSE Rule 476A(d). 

16 15 U.S.C. 78f(b)(7) and 15 U.S.C. 78f(d)(1). 

17 17 CFR 240.19d–1(c)(2). 

18 15 U.S.C. 78s(b)(2). 

19 17 CFR 200.30–3(a)(12); 17 CFR 200.30– 

3(a)(44). 

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

2 17 CFR 240.19b–4. 

3Section I of the Exchange’s Pricing Schedule is 

entitled ‘‘Rebates and Fees for Adding and 

Removing Liquidity in Select Symbols.’’ 

4SPY is one of the Select Symbols subject to the 

rebates and fees in Section I. A complete list of 

Select Symbols is included in Section I of the 

Pricing Schedule. 

III. Discussion and Commission 

Findings 

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.11 In particular, the 

Commission believes that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act 12 because expanding 

the list of DMM obligations that are 

subject to the Minor Rule Violation Plan 

should afford the Exchange increased 

flexibility in carrying out its supervisory 

responsibilities, and, in doing so, help 

to meet the aim of protecting investors 

and the public interest. 

The Commission also believes that the 

proposed rule change is consistent with 

Sections 6(b)(1) and 6(b)(6) of the Act,13

which require that an exchange enforce 

compliance with, and have rules that 

provide appropriate discipline for 

violations of, the Act, the rules and 

regulations thereunder, and Exchange 

rules. As an initial matter, the proposed 

rule change will further these objectives 

through its clarification of the list of 

Exchange rule violations that are subject 

to NYSE Rule 476A by updating rule 

titles and rule references, deleting 

references to rules that have been 

deleted, updating descriptions of rules 

that have been amended, and fixing a 

typographical error. 

Further, the Commission recognizes 

that the proposed rule change will 

render violations of DMM obligations 

under Rule 104 14 and Rule 123D that 

were not previously on the Rule 476A 

List as now eligible for treatment as 

minor violations. However, the 

Commission notes that designating a 

rule as subject to the Minor Rule 

Violation Plan does not signify that 

violation of the rule will always be 

deemed a minor violation. As noted by 

the Exchange, Rule 476A preserves the 

Exchange’s discretion to seek formal 

discipline, as warranted, when 

transgressions of rules designated as 

eligible for the Minor Rule Violation 

Plan are found to be more serious. Thus, 

the Exchange will remain able to 

require, on a case-by-case basis, formal 

disciplinary action for any particular 

violation. Therefore, the Commission 

believes that the proposed rule change 

will not compromise the Exchange’s 

ability to seek more stringent sanctions 

for the more serious violations of Rules 

104 and 123D. 

In addition, because NYSE Rule 476A 

provides procedural rights to a person 

fined under the rule, entitling the 

person to contest the fine and receive a 

full disciplinary proceeding,15 the 

Commission believes that NYSE Rule 

476A, as amended by this proposed rule 

change, will provide a fair procedure for 

the disciplining of Exchange members 

and persons associated with members, 

consistent with Sections 6(b)(7) and 

6(d)(1) of the Act.16

Finally, the Commission finds that the 

proposed rule change is consistent with 

the public interest, the protection of 

investors, or is otherwise in furtherance 

of the purposes of the Act, as required 

by Rule 19d–1(c)(2) under the Act,17

which governs minor rule violation 

plans. The Commission believes that the 

proposed changes to NYSE Rule 476A 

will strengthen the Exchange’s ability to 

carry out its oversight and enforcement 

responsibilities as a self-regulatory 

organization, in cases where full 

disciplinary proceedings are unsuitable 

in view of the nature of a particular 

violation. 

In approving this proposed rule 

change, the Commission emphasizes 

that in no way should the amendment 

of the rule be seen as minimizing the 

importance of compliance with NYSE 

rules and all other rules subject to the 

imposition of fines under NYSE Rule 

476A. The Commission believes that the 

violation of any self-regulatory 

organization’s rules, as well as 

Commission rules, is a serious matter. 

However, NYSE Rule 476A 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 the 

Exchange will continue to conduct 

surveillance with due diligence and 

make a determination based on its 

findings, on a case by-case basis, of 

whether a violation requires formal 

disciplinary action under Rule 476. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,18 that the 

proposed rule change (SR–NYSE–2012– 

05) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–8782 Filed 4–11–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66757; File No. SR–Phlx– 

2012–45] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Rebates for Adding and Removing 

Liquidity in SPY 

April 6, 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 April 2, 

2012, NASDAQ OMX PHLX LLC 

(‘‘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 amend 

Section I 3 of its Pricing Schedule to 

further incentivize market participants 

to transact SPDR S&P 500 (‘‘SPY’’) 4

options. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://nasdaqtrader.com/ 

micro.aspx?id=PHLXRulefilings, 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 

mstockstill on DSK4VPTVN1PROD with NOTICES