Document ID: SEC-2010-0010-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2010-01-05T05:00Z

[Federal Register: January 5, 2010 (Volume 75, Number 2)]
[Notices]               
[Page 500-501]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05ja10-155]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61257; File No. SR-NYSE-2009-116]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving a Proposed Rule Change To Increase the Ceiling on Its Equity 
Ownership Interest in BIDS Holdings L.P. to Less Than 10%

December 30, 2009.
    On November 18, 2009, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change, pursuant to Section 19(b)(1) 
of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ proposing to increase the ceiling on the Exchange's 
equity ownership interest in BIDS Holdings L.P. (``BIDS'') to less than 
10% from the current level of less than 9%. The proposed rule change 
was published for comment in the Federal Register on November 27, 
2009.\3\ The Commission received no comments on the proposal. This 
order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Act Exchange Release No. 61043 (November 20, 
2009), 74 FR 62612.
---------------------------------------------------------------------------

    On January 22, 2009, the Commission approved the formation of New 
York Block Exchange (``NYBX''), an electronic trading facility of the 
Exchange for NYSE-listed securities, established as a joint venture 
between the Exchange and BIDS.\4\ The governance structure as approved 
is reflected in the Limited Liability Company Agreement (``LLC 
Agreement'') of New York Block Exchange LLC (``Company''), the entity 
that owns and operates NYBX. Pursuant to the LLC Agreement, the 
Exchange and BIDS each own a 50% economic interest in the Company. In 
addition, the Exchange, through its wholly-owned subsidiary, NYSE 
Market, Inc., owns less than 9% of the aggregate limited partnership 
interest in BIDS. BIDS, through its subsidiary, BIDS Trading, L.P. 
(``BIDS Trading''), operates BIDS Alternative Trading System (ATS). In 
connection with the establishment of NYBX, BIDS Trading became a member 
of the Exchange.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 59281 (January 22, 
2009), 74 FR 5014 (January 28, 2009) (order approving SR-NYSE-2008-
120) (``Approval Order'').
---------------------------------------------------------------------------

    Absent prior Commission approval, the foregoing ownership 
arrangements would violate NYSE Rule 2B \5\ for two reasons. First, the 
Exchange's indirect ownership interest in BIDS Trading violates the 
prohibition in Rule 2B against the Exchange maintaining an ownership 
interest in a member organization. Second, BIDS Trading is an affiliate 
of an affiliate of the Exchange,\6\ which violates the prohibition in 
Rule 2B against a member of the Exchange having such affiliation.
---------------------------------------------------------------------------

    \5\ NYSE Rule 2B provides, in relevant part, that: ``[w]ithout 
prior SEC approval, the Exchange or any entity with which it is 
affiliated shall not, directly or indirectly, acquire or maintain an 
ownership interest in a member organization. In addition, a member 
organization shall not be or become an affiliate of the Exchange, or 
an affiliate of any affiliate of the Exchange. * * * The term 
affiliate shall have the meaning specified in Rule 12b-2 under the 
Act.''
    \6\ Specifically, the Company is an affiliate of the Exchange, 
and BIDS Trading is an affiliate of the Company. The affiliation in 
each case is the result of the 50% ownership interest in the Company 
by each of the Exchange and BIDS.
---------------------------------------------------------------------------

    Consequently, in the Approval Order, the Commission permitted an 
exception to NYSE Rule 2B, subject to a number of limitations and 
conditions. One of the conditions for Commission approval of the 
ownership arrangements was that the proposed exception from NYSE Rule 
2B to permit NYSE's indirect interest in BIDS Trading and BIDS 
Trading's affiliation with the Company would be for a pilot period of 
12 months.\7\ Another condition for Commission approval was that NYSE, 
or any of its affiliates, would not directly or indirectly increase its 
equity interest in BIDS without prior Commission approval.\8\
---------------------------------------------------------------------------

    \7\ See Approval Order, 74 FR at 5018.
    \8\ See id.
---------------------------------------------------------------------------

    The Exchange proposes to increase the ceiling of its equity 
ownership in BIDS from the current limit of less than 9% to less than 
10%. BIDS is offering its members the opportunity to invest, on a pro 
rata basis, in a new class of preferred equity interests, and the 
Exchange wishes to participate in the new round of capital raising by 
BIDS without inadvertently exceeding the current limit. The Exchange 
represents that, based on its expectations, the participation of the 
Exchange in the capital raising could slightly increase its percentage 
ownership in BIDS to between 9% and 10%. Other than this increase in 
the Exchange's equity ownership, all of the other limitations and 
conditions required by the terms of the Approval Order for the 
exception to NYSE Rule 2B would continue to apply during the pilot 
period.\9\ Further, the Exchange and its affiliates do not, and would 
continue not to, have any voting or other control arrangement with any 
of the other limited partners or general partner of BIDS.\10\
---------------------------------------------------------------------------

    \9\ See id.
    \10\ See id., n. 69.
---------------------------------------------------------------------------

    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 finds that the proposed rule change furthers 
the objectives of Section 6(b)(1) of the Act,\12\ which requires a 
national securities exchange to be so organized and have the capacity 
to carry out the purposes of the Act and to comply, and to enforce 
compliance by its members and persons associated with its members, with 
the provisions of the Act. The Commission also finds that the proposed 
rule change is consistent with, and furthers the objectives of Section 
6(b)(5) of the Act,\13\ in that it is designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \11\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(1).
    \13\ 15 U.S.C. 78f(b)(5).

---------------------------------------------------------------------------

[[Page 501]]

    In the Approval Order, the Commission determined that the exception 
from NYSE Rule 2B to permit NYSE's indirect interest in BIDS Trading 
and BIDS Trading's affiliation with an affiliate of the Exchange is 
consistent with the Act, because the limitations and conditions 
stipulated appear reasonably designed to mitigate concerns about 
potential conflicts of interest and unfair competitive advantage. 
Further, the Commission determined that these conditions appear 
reasonably designed to promote robust and independent regulation of 
BIDS Trading.
    The Commission has consistently expressed concern that an 
affiliation of an exchange with, or an ownership of, one of its members 
could raise a potential conflict of interest and impede its self-
regulatory responsibilities with respect to such member. Although the 
Exchange proposes a small increase in the ceiling of its equity 
ownership of BIDS, the Commission notes that all of the other 
limitations and conditions would continue to apply, and the exceptions 
to NYSE Rule 2B would continue to be on a pilot basis. Further, the 
increase in the Exchange's equity ownership does not appear 
sufficiently large to raise additional or new concerns. Therefore, the 
Commission continues to find that the exception from NYSE Rule 2B 
described above would continue to be consistent with the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NYSE-2009-116) is hereby 
approved.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-31343 Filed 1-4-10; 8:45 am]

BILLING CODE 8011-01-P