Document ID: SEC-2016-0191-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2016-02-05T05:00Z

[Federal Register Volume 81, Number 24 (Friday, February 5, 2016)]
[Notices]
[Pages 6311-6314]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02198]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77008; File No. SR-NYSEMKT-2015-106]

Self-Regulatory Organizations; NYSE MKT LLC; Order Approving 
Proposed Rule Change Amending the Seventh Amended and Restated 
Operating Agreement of the Exchange To Establish a Committee for Review 
as a Sub-Committee of the ROC and Make Conforming Changes to Rules and 
the NYSE MKT Company Guide

February 1, 2016.

I. Introduction

    On December 11, 2015, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(``Act''),\2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to 
amend the Seventh Amended and Restated Operating Agreement (``Operating 
Agreement'') of the Exchange and to amend various rules of the 
Exchange, as described below. The proposed rule change was published 
for comment in the Federal Register on December 18, 2015.\4\ The 
Commission received no comment letters on the proposed rule change. 
This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 76638 (December 14, 
2015), 80 FR 79117 (``Notice'').
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II. Description of the Proposal

    As part of a regulatory restructuring, NYSE proposes to: (i) Amend 
the Operating Agreement to establish a Committee for Review (``CFR'') 
as a subcommittee of the Regulatory Oversight Committee (``ROC'') \5\ 
and make conforming changes to Exchange Rules 475, 476, 476A, 20--
Equities, 308--Equities and Sections 1201, 1204, 1205, 1206, 1211, and 
1212T of the Company Guide; (ii) delete references to ``NYSE 
Regulation, Inc.'' and ``NYSE Regulation'' \6\ in Section 4.05 of the

[[Page 6312]]

Operating Agreement as well as Exchange Rules 0, 1--Equities, 22--
Equities, 36--Equities, 48--Equities, 49--Equities, 54--Equities, 70--
Equities, 103--Equities, 103A--Equities, 103B--Equities, 422--Equities, 
497--Equities, and 902NY; (iii) replace references to the Chief 
Executive Officer of NYSE Regulation in Exchange Rules 48--Equities, 
49--Equities, and 86--Equities with references to the Chief Regulatory 
Officer of the Exchange; and (iv) make certain technical and non-
substantive changes.
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    \5\ The Commission recently approved the Exchange's proposal to 
establish the ROC as a committee of the Exchange's Board of 
Directors (``Board'') to be composed solely of directors who satisfy 
the Exchange's independence requirements, as set forth in the 
Exchange's Independence Policy of the Board of Directors. See 
Securities Exchange Act Release No. 75148 (June 11, 2015), 80 FR 
34751 (June 17, 2015).
    \6\ NYSE Regulation, Inc. (``NYSE Regulation''), a not-for-
profit subsidiary of the Exchange's affiliate New York Stock 
Exchange LLC (``NYSE''), performs regulatory functions for the 
Exchange pursuant to an intercompany Regulatory Services Agreement 
(``RSA'') that gives the Exchange the contractual right to review 
NYSE Regulation's performance. See Notice, supra note 4, at 79117 
n.4.
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    The Exchange proposes that these rule revisions would be operative 
simultaneously with the termination of the Regulatory Services 
Agreement between the Exchange and NYSE Regulation, but no later than 
June 30, 2016, on a date to be determined by the Board.\7\
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    \7\ See id.
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A. Establishing a Committee for Review and Conforming Exchange Rules

    The Exchange proposes to establish a Committee for Review (``CFR'') 
as a subcommittee of the ROC by adding a new subsection (h)(iii) to 
Section 2.03 of the Operating Agreement and to make conforming changes 
to Exchange Rules 475, 476, 476A, 20--Equities, 308--Equities and 
Sections 1201, 1204, 1205, 1206, 1211, and 1212T of the Company 
Guide.\8\ The proposed CFR would be the successor to the current CFR, 
which is a committee of NYSE Regulation's Board of Directors that 
reviews appeals of Exchange disciplinary actions, and the Committee on 
Securities, which is a Board committee that reviews determinations to 
limit or prohibit the continued listing of an issuer's securities on 
the Exchange.\9\
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    \8\ See id. at 79118.
    \9\ See id.
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    Section 2.03(h)(iii) of the Operating Agreement would provide that 
the Board shall annually appoint a CFR as a subcommittee of the ROC. 
The Exchange notes that proposed Section 2.03(h)(iii) of the Operating 
Agreement incorporates member organization association requirements of 
the current CFR.\10\ The proposed CFR would be comprised of both 
Exchange directors who satisfy the Exchange's independence requirements 
as well as non-directors.\11\ The Exchange notes that, because the 
majority of the Board would be independent directors, as a functional 
matter if the Exchange were to have a five-person Board, at least three 
of the five directors would qualify for CFR membership.\12\ Non-
directors serving on the proposed CFR would include representatives of 
member organizations that engage in a business involving substantial 
direct contact with securities customers (upstairs firms), DMMs or 
specialists, and floor brokers.\13\ The Exchange notes that the 
proposed CFR, like the current CFR, would be selected after appropriate 
consultation with those members.\14\ The Exchange notes further that, 
for any CFR vote, a majority of the members of the CFR casting votes 
would have to be directors of the Exchange.
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    \10\ See id.
    \11\ See id. at 79118 n.8 and accompanying text (citing the 
Independence Policy of the Board of Directors).
    \12\ See id. at 79118 n.8.
    \13\ See id. at 79118. The Exchange notes that market makers on 
the Exchange's equity market are called DMMs and on NYSE Amex 
Options are called specialists. See id. at 79918 n.9.
    \14\ The Exchange does not propose to incorporate from the 
current CFR the category of a NYSE MKT member that is associated 
with a NYSE MKT member organization that spends a majority of their 
time on the trading floor and has a substantial part of their 
business the execution of transactions on the trading floor for 
their own account or the account of their member organization but is 
not registered as a specialist. See Notice, supra note 4, at 79118 
n.9. The Exchange represents that this category of NYSE MKT member 
no longer exists and, as a result, the Exchange does not propose to 
require the representation of such member on the proposed CFR. See 
id.
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    The proposed CFR would be responsible for reviewing the 
disciplinary decisions on behalf of the Board and reviewing 
determinations to limit or prohibit the continued listing of an 
issuer's securities on the Exchange.\15\ Additionally, the Exchange 
proposes to incorporate the role of the Market Performance and 
Regulatory Advisory Committees into the proposed CFR.\16\ As a result, 
the proposed CFR would be charged with acting in an advisory capacity 
to the Board with respect to disciplinary matters, the listing and 
delisting of securities, regulatory programs, rulemaking and regulatory 
rules, including trading rules. The Exchange states that the proposed 
CFR would therefore serve in the same advisory capacity as the Market 
Performance and Regulatory Advisory Committees.\17\
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    \15\ The Exchange notes that these powers are currently set 
forth in the charter of the NYSE Regulation CFR, which also states 
that the CFR can provide general advice to the NYSE Regulation's 
Board of Directors in connection with disciplinary, listing and 
other regulatory matters. The Exchange proposes to delineate the 
appellate and advisory powers of the proposed CFR in Section 
2.03(h)(iii) of the Operating Agreement. See id. at 79118 n.11.
    \16\ Id. at 79118-19. The Exchange notes that the same profile 
of members who historically have served on these advisory committees 
would be represented on the proposed CFR. Id.
    \17\ See id. at 79118.
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    According to the Exchange, member participation on the proposed CFR 
would be sufficient to provide for the fair representation of members 
in the administration of the affairs of the Exchange, including 
rulemaking and the disciplinary process, consistent with Section 
6(b)(3) of the Act.\18\
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    \18\ See id. at 79119 and 15 U.S.C. 78f(b)(3).
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    The Exchange proposes to make conforming amendments to Exchange 
Rules 475, 476, 476A and 308--Equities and Sections 1201, 1204, 1205, 
1206, 1211, and 1212T of the Company Guide by generally replacing 
references to the current NYSE Regulation CFR with references to the 
``Committee for Review.''
    The Exchange further proposes to amend Rule 476(f) to provide that 
the CFR may, but would not be required to, appoint an appeals panel to 
conduct a review thereunder and make a recommendation to the CFR 
regarding the disposition of the appeal. The Exchange represents that 
appeals panels would have no other role in the appellate process.\19\ 
Any proposed appeals panel, as appointed by the CFR, would consist of 
at least three and no more than five individuals consistent with the 
composition of appeals panels constituted under the rules of the 
Exchange's affiliate, NYSE Arca, Inc.\20\ The Exchange represents that 
an appeals panel appointed by the CFR for equity matters would be 
composed of at least one director and one member or individual 
associated with an equities member organization. The Exchange further 
represents that an appeals panel appointed by the CFR for options 
matters would be composed of at least one director and one member or 
individual associated with an options member organization. The Exchange 
also proposes to describe the CFR as a subcommittee of the Exchange's 
ROC in Sections 1205 and 1212T(g) of the Company Guide.
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    \19\ See id. at 79119.
    \20\ See id.
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B. Modifying Exchange Rules To Delete References to NYSE Regulation

    The Exchange proposes in connection with the Exchange's termination 
of the intercompany RSA to amend Section 4.05 of the Operating 
Agreement as well as Exchange Rules 0 (Regulation of the Exchange and 
its Member Organizations), 1--Equities (Definitions of Terms), 22--
Equities (Disqualification Because of Personal Interest), 36 
(Supplementary Material .30)--Equities (Communications Between Exchange 
and Members' Offices), 46 (Supplementary Material

[[Page 6313]]

.10)--Equities (Floor Officials -Appointment), 48--Equities (Exemptive 
Relief--Extreme Market Volatility Condition), 49--Equities (Emergency 
Powers), 54--Equities (Dealings on Floor--Persons), 70 (Subparts (1) 
and (7) of Supplementary Material .40)--Equities (Execution of Floor 
Broker Interest), 103--Equities (Registration and Capital Requirements 
of DMMs and DMM Units), 103A--Equities (Member Education), 103B (Policy 
Note G and Supplementary Material .10)--Equities (Security Allocation 
and Reallocation), 422--Equities (Loans of and to Directors, etc.), 
497--Equities (Additional Requirements for Listed Securities Issued by 
Intercontinental Exchange, Inc. or its Affiliates), and 902NY 
(Admission and Conduct on the Options Trading Floor) by deleting 
references to ``NYSE Regulation, Inc.'' and ``NYSE Regulation'' and 
where appropriate to replace such references with the ``Exchange'' or 
the ``Exchange regulatory staff.'' \21\
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    \21\ See id. at 79119-20.
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C. Modifying Exchange Rules To Reference the Exchange's Chief 
Regulatory Officer

    The Exchange proposes to amend Exchange Rules 48--Equities 
(Exemptive Relief--Extreme Market Volatility Condition), 49--Equities 
(Emergency Powers), and 86--Equities (NYSE Bonds), to replace 
references to the Chief Executive Officer of NYSE Regulation with 
references to the Chief Regulatory Officer of the Exchange.

D. Certain Technical and Non-Substantive Changes

    The Exchange proposes to make certain technical and non-substantive 
changes to amend Exchange Rules 1--Equities (Definitions of Terms), 
48--Equities (Exemptive Relief-- Extreme Market Volatility Condition), 
and 103B--Equities (Security Allocation and Reallocation). The Exchange 
also proposes to make certain technical and non-substantive changes to 
amend the Exchange's Company Guide Sections 350 (Cancellation Notice), 
1204 (The Listing Qualifications Panel), 1205 (Review by the Exchange 
Committee on Securities), 1206 (Discretionary Review by Board of 
Directors), 1212T (Temporary Provisions Regarding Legacy Applications 
for Initial Listing), and the Listing Forms Appendix.
    Exchange Rule 1-Equities, which defines the term the ``Exchange,'' 
would be amended to replace single quotation marks with double 
quotation marks in the heading and in the first paragraph.
    Exchange Rule 48--Equities, which sets forth the procedures for 
invoking an extreme market volatility condition, would be amended to 
replace single quotation marks with double quotation marks around the 
term ``qualified Exchange officer.''
    Exchange Rule 103B--Equities, which governs the security allocation 
and reallocation process, would be amended to replace single quotation 
marks with double quotation marks around the term ``Allocation 
Prohibition'' and to remove the comma from ``New York Stock Exchange, 
LLC.''
    The Exchange proposes to update the sample letter set forth in 
Section 350 of the Exchange's Company Guide. Section 350 provides that 
a company no longer intending to issue all or some securities for 
listing should cancel the listing authority by notifying the Exchange 
by letter, and provides a sample letter for use by listed companies. 
The Exchange proposes to amend the sample letter in Section 350 by 
changing the addressee from ``Office of General Counsel'' to ``Legal 
Department,'' updating the address to ``11 Wall Street,'' and the 
salutation from ``Dear Sirs'' to ``Ladies and Gentlemen.'' Similarly, 
the Exchange proposes to make conforming changes in the Exchange's 
Company Guide Sections 1204, 1205, 1206 and 1212T to replace references 
to the ``Office of General Counsel'' with ``Legal Department.''
    The Exchange also proposes to amend Section 1212T(c) to replace the 
outdated reference to ``American Stock Exchange'' with ``Exchange.''
    Finally, the Exchange proposes to update the Listing Forms Appendix 
to update the address from ``30 Broad'' to ``11 Wall'' Street.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\22\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(1) of the Act, which requires an 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 Act, the rules and 
regulations thereunder, and the rules of the exchange.\23\ The 
Commission finds that the proposal also is consistent with the 
requirements of Section 6(b)(3) of the Act, which provides that the 
rules of an exchange must assure a fair representation of its members 
in the selection of its directors and administration of its affairs and 
provide that one or more directors shall be representative of issuers 
and investors and not be associated with a member of the exchange, 
broker, or dealer.\24\ In addition, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act, which requires 
that the rules of the exchange be designed, among other things, to 
prevent fraudulent and manipulative acts and practices, 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.\25\ 
Finally, the Commission finds that the proposal is consistent with 
Section 6(b)(7) of the Act, which requires that the rules of the 
exchange provide a fair procedure for the disciplining of its members 
and persons associated with members, the denial of membership to any 
person seeking membership therein, the barring of any person from 
becoming associated with a member thereof, and the prohibition or 
limitation by the exchange with respect to access to services offered 
by the exchange or a member thereof.\26\
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    \22\ 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).
    \23\ 15 U.S.C. 78f(b)(1).
    \24\ 15 U.S.C. 78f(b)(3).
    \25\ 15 U.S.C. 78f(b)(5).
    \26\ 15 U.S.C. 78f(b)(7).
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    The Exchange represents that the proposed CFR would be a successor 
to the current CFR, which is a committee of the NYSE Regulation's Board 
of Directors that reviews appeals of Exchange disciplinary actions, and 
the Committee on Securities, which is a committee of the Exchange's 
Board that reviews determinations to limit or prohibit the continued 
listing of an issuer's securities on the Exchange.\27\ The Exchange 
also proposes to incorporate the responsibilities of the Market 
Performance Committee and the Regulatory Advisory Committee into the 
proposed CFR.\28\ According to the Exchange, the Market Performance 
Committee acts in an advisory capacity regarding trading rules and 
other matters within its charter, and the Regulatory Advisory Committee 
acts in an advisory capacity regarding disciplinary matters and 
regulatory

[[Page 6314]]

rules other than trading rules.\29\ Therefore, the Exchange proposes to 
expand the proposed CFR's responsibilities to include acting in an 
advisory capacity to the Board with respect to disciplinary matters, 
the listing and delisting of securities, regulatory programs, 
rulemaking and regulatory rules, including trading rules.\30\ The 
Commission notes that the proposed CFR incorporates the salient 
features of the current CFR, including the requirement that the CFR be 
comprised of both Exchange directors who satisfy the Exchange's 
independence requirements,\31\ as well as persons who are not 
directors, and that a majority of the members of the CFR voting on a 
matter subject to a vote of the CFR must be directors of the 
Exchange.\32\ As such, the Commission finds that the Exchange's 
proposed revisions to its appellate procedure for disciplinary matters 
and for determinations to limit or prohibit the continued listing of an 
issuer's securities on the Exchange ensures sufficient independence of 
the appellate function of the Exchange, and therefore helps to ensure 
that the exchange is organized and has the capacity to carry out the 
purposes of the Act, as required by Section 6(b)(1) of the Act.\33\
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    \27\ See Notice, supra note 4, at 79118.
    \28\ See id. at 79118-19.
    \29\ See id. The Exchange notes that the same categories of NYSE 
MKT members that were represented on the Market Performance 
Committee and the Regulatory Advisory Committee would be represented 
on the proposed CFR. See id.
    \30\ See id.
    \31\ See note 11, supra.
    \32\ See Notice, supra note 4, at 79118.
    \33\ 15 U.S.C. 78f(b)(1).
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    The Commission also finds that the composition of the proposed CFR 
ensures the fair representation of members in the administration of the 
Exchange's affairs.\34\ Proposed Section 2.03(h)(iii) of the Exchange's 
Operating Agreement provides that, among the persons on the proposed 
CFR, who are not directors, at least one individual from each of the 
following categories must be on the CFR: (i) Individuals who are 
associated with a Member Organization that engages in a business 
involving substantial direct contact with securities customers, (ii) 
individuals who are associated with a Member Organization and 
registered as a DMM or specialist,\35\ and (iii) individuals who are 
associated with a Member Organization and have as a substantial part of 
their business the execution of transactions on the trading floor of 
the Exchange for other than their own account or the account of his or 
her Member Organization, but are not registered as a DMM or 
specialist.\36\ Because NYSE MKT members will serve on the proposed 
CFR, which will be charged with acting in an advisory capacity to the 
Board with respect to disciplinary matters, the listing and delisting 
of securities, regulatory programs, rulemaking and regulatory rules, 
including trading rules, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(3) of the Act.\37\
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    \34\ 15 U.S.C. 78f(b)(3).
    \35\ The Exchange notes that market makers on the Exchange's 
equity market are called DMMs and on NYSE Amex Options are called 
specialists. See Notice, supra note 4, at 79118 n.9.
    \36\ See id.
    \37\ 15 U.S.C. 78f(b)(3).
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    The Exchange also proposes to amend Exchange Rule 476(f) to permit 
the CFR to appoint an appeals panel, consisting of at least three and 
no more than five individuals, which would conduct a review of any 
disciplinary determination on behalf of the CFR, and make a 
recommendation to the CFR regarding the disposition of such appeal.\38\ 
According to the Exchange, an appeals panel appointed by the CFR for 
equity matters would be composed of at least one director and one 
member or individual associated with an equities member organization, 
and an appeals panel appointed for options matters would be composed of 
at least one director and one member or individual associated with an 
options member organization.\39\ The Commission finds that the 
Exchange's proposal with respect to the proposed composition and the 
role of an appeals panel is consistent with Sections 6(b)(3) and 
6(b)(7) of the Act.\40\
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    \38\ See Notice, supra note 4, at 79119. According to the 
Exchange, any such appeals panel would have no other role in the 
appellate process. See id.
    \39\ See id.
    \40\ 15 U.S.C. 78f(b)(3) and 15 U.S.C. 78f(b)(7).
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    Finally, the Commission finds that it is consistent with Section 
6(b)(5) of the Act for the Exchange to make various technical and 
conforming revisions to its Rules.\41\
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    \41\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NYSEMKT-2015-106) is approved.
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    \42\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-02198 Filed 2-4-16; 8:45 am]
BILLING CODE 8011-01-P