Document ID: SEC-2010-0857-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2010-06-15T04:00Z

[Federal Register: June 15, 2010 (Volume 75, Number 114)]
[Notices]               
[Page 33872-33874]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15jn10-128]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62231; File No. SR-NYSE-2010-42]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by New York Stock Exchange LLC 
Amending NYSE Rule 123C(9)(a)(1) To Extend the Operation of a Pilot 
Operating Pursuant to the Rule Until December 1, 2010

June 4, 2010.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on May 27, 2010, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Rule 123C(9)(a)(1) to extend 
the operation of a pilot operating pursuant the Rule until December 1, 
2010. The text of the proposed rule change is available at the 
Exchange, on the Commission's Web site at http://www.sec.gov, the 
Commission's Public Reference Room, and http://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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The New York Stock Exchange (``NYSE'' or the ``Exchange'') proposes 
to amend NYSE Rule 123C(9)(a)(1) to extend the operation of a pilot 
that allows the Exchange to temporarily suspend certain rule 
requirements at the close when extreme order imbalances may cause 
significant dislocation to the closing price (``Extreme Order 
Imbalances Pilot'' or ``Pilot'') \4\ until December 1, 2010.\5\
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    \4\ See Securities Exchange Act Release No. 59755 (April 13, 
2009) 74 FR 18009 (April 20, 2009) (SR-NYSE-2009-18); see also, 
Securities and Exchange Act Release No. 61264 (December 31, 2009) 75 
FR 1107 (January 8, 2010) (SR-NYSE-2009-131) (extending the 
operation of the pilot from December 31, 2009 to March 1, 2010); 
Securities Exchange Act Release No. 61612, (March 1, 2010), (SR-
NYSE-2010-11) (extending the operation of the pilot from March 1, 
2010 to June 1, 2010).
    \5\ The Exchange notes that parallel changes are proposed to be 
made to the rules of NYSE Amex LLC. See SR-NYSEAmex-2010-50.
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    Background
    Pursuant to NYSE Rule 123C(9)(a)(1), the Exchange may suspend NYSE 
Rule 52 (Hours of Operation) to resolve an extreme order imbalance that 
may result in a price dislocation at the close as a result of an order 
entered into Exchange systems or represented to a DMM orally at or near 
the close. The provisions of NYSE Rule 123C(9)(a)(1) operate as the 
Extreme Order Imbalance Pilot.
    As a condition of the approval to operate the Pilot, the Exchange 
committed to provide the Commission with information regarding: (i) how 
often a Rule 52 temporary suspension pursuant to the Pilot was invoked 
during the six months following its approval; and (ii) the Exchange's 
determination as to how to proceed with technical modifications to 
reconfigure Exchange systems to accept orders electronically after 4 
p.m.
    During the operation of the Pilot, the Exchange believed that the 
systems modifications to allow Exchange systems to accept orders 
electronically after 4 p.m. would not be as onerous as previously 
believed when the Pilot was initially commenced. The Exchange completed 
the system modifications necessary to accept orders electronically 
after 4 p.m. and began the process of testing the modifications. The 
Exchange therefore filed to extend the Extreme Order Imbalance Pilot 
until the earlier of SEC approval to make such Pilot permanent or June 
1, 2010.\6\ At the time,

[[Page 33873]]

the Exchange anticipated that its quality assurance review process 
would be completed by June 1, 2010 and it would be able to operate 
under the new system. The quality assurance review determined that 
additional testing was required in order to assure the optimal 
functioning of the system modifications. Given unanticipated market 
wide initiatives that were [sic] (i.e., short sale and stock-by-stock 
circuit breakers), which require systemic modifications and a 
significant allocation of quality assurance resources, additional 
testing is not feasible at this time.
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    \6\ See Securities Exchange Act Release No. 61612, (March 1, 
2010), (SR-NYSE-2010-11) (extending the operation of the pilot from 
March 1, 2010 to June 1, 2010).
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Proposal To Extend the Operation of the Extreme Order Imbalance Pilot
    The Exchange established the Extreme Order Imbalance Pilot to 
create a mechanism for ensuring a fair and orderly close when interest 
is received at or near the close that could negatively affect the 
closing transaction. The Exchange believes that this tool has proved 
very useful to resolve an extreme order imbalance that may result in a 
closing price dislocation at the close as a result of an order entered 
into Exchange systems, or represented to a DMM orally at or near the 
close.
    NYSE Rule 123C(9) was intended to be and has been invoked to 
attract offsetting interest in rare circumstances where there exists an 
extreme imbalance at the close such that a DMM is unable to close the 
security without significantly dislocating the price. This is evidenced 
by the fact that since the inception of the pilot in April 2009, the 
Exchange has invoked the provisions of NYSE Rule 123C(9)(a)(1) on only 
four occasions.
    Given the infrequency of these situations, the Exchange proposes to 
extend the operation of the Pilot for a six-month period to allow the 
Exchange to complete systemic modifications required to implement the 
short sale and stock-by-stock circuit breakers, as well as to upgrade 
server capacity and an upcoming initiative to incorporate odd-lot 
orders into the round lot market and decommission its Odd-lot System. 
During the six-month period, the Exchange will continue to monitor and 
provide to the Commission information on how often it suspends NYSE 
Rule 52 (Hours of Operation) to resolve an extreme order imbalance that 
may result in a price dislocation at the close as a result of an order 
entered into Exchange systems, or represented to a DMM orally at or 
near the close. At the end of that period, the Exchange will be in a 
better position to determine the efficacy of providing any additional 
functionality under this Pilot rule. The Exchange therefore requests an 
extension from the current expiration date of June 1, 2010, until 
December 1, 2010.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \7\ that an Exchange have rules that 
are designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest. The Exchange believes that the 
instant filing is consistent with these principles. Specifically an 
extension will allow the Exchange to determine the efficacy of 
providing any additional functionality under this Pilot rule. The rule 
operates to protect investors and the public interest by ensuring that 
the closing price at the Exchange is not significantly dislocated from 
the last sale price by virtue of an extreme order imbalance at or near 
the close.
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    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest, the proposed rule change has 
become effective pursuant to Section 19(b)(3)(A) of the Act \8\ and 
Rule 19b-4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange is required to give 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 date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \10\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \11\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay.
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiver of the operative delay is 
consistent with the protection of investors and the public interest. 
The Commission notes that because the pilot program was scheduled to 
expire on June 1, 2010, waiver of the operative delay is necessary so 
that no interruption of the pilot program will occur. In addition, the 
Commission notes that the Exchange has requested the extension to allow 
the Exchange time to fully evaluate the Extreme Order Imbalance Pilot. 
Therefore, the Commission designates the proposed rule change operative 
upon filing.\12\
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    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the 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 rule-comments@sec.gov. Please include 
File No. SR-NYSE-2010-42 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission,

[[Page 33874]]

100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File No. SR-NYSE-2010-42. 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,\13\ 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 NYSE. 
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 No. SR-NYSE-2010-42 and 
should be submitted on or before July 6, 2010.
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    \13\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-14368 Filed 6-14-10; 8:45 am]
BILLING CODE 8011-01-P