Document ID: SEC-2009-0250-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Alternext US LLC
Posted Date: 2009-02-25T05:00Z

[Federal Register: February 25, 2009 (Volume 74, Number 36)]
[Notices]               
[Page 8603-8605]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25fe09-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59416; File No. SR-NYSEALTR-2009-09]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NYSE Alternext US LLC Amending 
Certain NYSE Alternext Equities Rules To Reflect That Designated Market 
Makers (``DMMs'') on the Exchange No Longer Act as Agents for Orders 
Entered on the Exchange

February 18, 2009.
    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 February 4, 2009, NYSE Alternext US LLC (the 
``Exchange'' or ``NYSE Alternext'') 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 certain NYSE Alternext Equities 
rules to reflect that Designated Market Makers (``DMMs'') on the 
Exchange will no longer act as agents for orders entered on the 
Exchange.
    The text of the proposed rule change is available at http://
www.nyse.com, the Exchange, and 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 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
    Through this filing, the Exchange proposes to amend certain NYSE 
Alternext Equities rules to conform them with amendments filed by the 
New York Stock Exchange, Inc. [sic] LLC \4\ to reflect that the 
Designated Market Makers (``DMMs'') no longer have agency 
responsibilities for orders entered on the Display Book[supreg] 
(``Display Book'').\5\
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    \4\ See SR-NYSE-2009-13 (to be filed on February 4, 2009).
    \5\ The Display Book[supreg] system is an order management and 
execution facility. The Display Book system receives and displays 
orders to the DMM, contains the Book, and provides a mechanism to 
execute and report transactions and publish results to the 
Consolidated Tape. The Display Book system is connected to a number 
of other Exchange systems for the purposes of comparison, 
surveillance, and reporting information to customers and other 
market data and national market systems.
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    As described more fully in a related rule filing,\6\ NYSE Euronext 
acquired The Amex Membership Corporation (``AMC'') pursuant to an 
Agreement and Plan of Merger, dated January 17, 2008 (the ``Merger''). 
In connection with the Merger, the Exchange's predecessor, the American 
Stock Exchange LLC (``Amex''), a subsidiary of AMC, became a subsidiary 
of NYSE Euronext called NYSE Alternext US LLC, and continues to operate 
as a national securities exchange registered under Section 6 of the 
Securities Exchange Act of 1934, as amended (the ``Act'').\7\ The 
effective date of the Merger was October 1, 2008.
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    \6\ See Securities Exchange Act Release No. 58673 (September 29, 
2008), 73 FR 57707 (October 3, 2008) (SR-NYSE-2008-60 and SR-Amex 
2008-62) (approving the Merger).
    \7\15 U.S.C. 78f.
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    In connection with the Merger, on December 1, 2008, the Exchange 
relocated all equities trading conducted on the Exchange legacy trading 
systems and facilities located at 86 Trinity Place, New York, New York, 
to trading systems and facilities located at 11 Wall Street, New York, 
New York (the ``Equities Relocation''). The Exchange's equity trading 
systems and facilities at 11 Wall Street (the ``NYSE Alternext Trading 
Systems'') are operated by the NYSE on behalf of the Exchange.\8\
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    \8\ See Securities Exchange Act Release No. 58705 (October 1, 
2008), 73 FR 58995 (October 8, 2008) (SR-Amex 2008-63) (approving 
the Equities Relocation).
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    As part of the Equities Relocation, NYSE Alternext adopted NYSE 
Rules 1-1004, subject to such changes as necessary to apply the Rules 
to the Exchange, as the NYSE Alternext Equities Rules to govern trading 
on the NYSE Alternext Trading Systems.\9\ The NYSE Alternext Equities 
Rules, which became operative on December 1, 2008, are substantially 
identical to the current NYSE Rules 1-1004 and the Exchange continues 
to update the NYSE Alternext Equities Rules as necessary to conform 
with rule changes to corresponding NYSE Rules filed by the NYSE.
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    \9\ See Securities Exchange Act Release No. 58705 (October 1, 
2008), 73 FR 58995 (October 8, 2008) (SR-Amex 2008-63) (approving 
the Equities Relocation); Securities Exchange Act Release No. 58833 
(October 22, 2008), 73 FR 64642 (October 30, 2008) (SR-NYSE-2008-
106) and Securities Exchange Act Release No. 58839 (October 23, 
2008), 73 FR 64645 (October 30, 2008) (SR-NYSEALTR-2008-03) 
(together, approving the Bonds Relocation); Securities Exchange Act 
Release No. 59022 (November 26, 2008), 73 FR 73683 (December 3, 
2008) (SR-NYSEALTR-2008-10) (adopting amendments to NYSE Alternext 
Equities Rules to track changes to corresponding NYSE Rules); 
Securities Exchange Act Release No. 59027 (November 28, 2008), 73 FR 
73681 (December 3, 2008) (SR-NYSEALTR-2008-11) (adopting amendments 
to Rule 62-NYSE Alternext Equities to track changes to corresponding 
NYSE Rule 62).
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Background
    On June 12, 2008, the NYSE filed a set of proposed rule changes 
designed to transform its market structure and reinforce the NYSE as 
the premier venue for price discovery, liquidity, competitive quotes 
and price improvement.\10\ That and other filings \11\ formed the core 
initiatives submitted by the NYSE to reinforce its dynamic and 
competitive marketplace.
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    \10\ See Securities Exchange Act Release No. 58184 (July 17, 
2008), 73 FR 42853 (July 23, 2008) (SR-NYSE-2008-46).
    \11\ See for example, Securities Exchange Act Release No. 58052 
(June 27, 2008), 73 FR 38274 (July 3, 2008) (SR-NYSE-2008-45) 
(amending NYSE Rule 98); see also Securities Exchange Act Release 
No. 58363 (August 14, 2008), 73 FR 49514 (August 21, 2008) (SR-NYSE-
2008-52) (amending the NYSE allocation policy).
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    As outlined in SR-NYSE-2008-46 (the ``New Market Model filing''), 
the changes to the NYSE's marketplace

[[Page 8604]]

included the replacement of NYSE specialists with DMMs. These changes 
are also applicable to the NYSE Alternext market. The function of the 
DMM is substantially different from the manner in which Exchange 
specialists functioned vis-[agrave]-vis the relationship between order 
givers and representation of these orders in the marketplace. DMMs no 
longer receive copies of orders entered in Exchange systems prior to 
the order's publication to all market participants by Display Book. 
Similarly, DMMs do not have a negative obligation which would require 
the DMM to yield trading for the DMM unit's proprietary account in 
order to allow public orders to be executed against each other. DMMs 
therefore trade on parity with all market participants.
    Incoming orders to buy and sell submitted to the Exchange are 
eligible for automatic quoting and immediate and automatic execution. 
Instead of the DMM, the Display Book is responsible for tracking the 
liquidity available at each specified price point. Exchange systems 
automatically review the liquidity available on the Display Book for 
execution and then using sophisticated execution logic access the 
necessary liquidity to consummate trades. Exchange systems report 
executions to the entering parties, update the quote and process order 
cancellations.
    Although the DMM no longer receives order by order information, he 
or she is still responsible for the execution of manual transactions on 
the Exchange including opening and re-opening transactions, closing 
transactions, block transactions, gap quote situations and when trading 
reaches LRPs that would lock or cross the market.\12\ DMMs are 
responsible for choosing the price \13\ and the executions of the 
orders at that price during those specific situations.
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    \12\ See NYSE Alternext Rule 104(a)(2)-(5).
    \13\ In an opening and reopening trade, Display Book will verify 
that all interest that must be executed in the opening or reopening 
can be executed at the price chosen by the DMM. If all the interest 
that must be executed in the transaction cannot be executed at that 
price, the Display Book will block the execution. In addition, when 
executing blocks (10,000 shares or more or value of $200,000 or 
more), trading out of a gap quote situation or an LRP that locks or 
crossed the market, the Display Book may adjust the execution price 
if there is enough interest on the Display Book to complete the 
transaction at a better price.
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    In the current Exchange trading environment, the DMM no longer 
functions as an agent for orders on the Display Book because the DMM 
does not control order by order information. As such the Exchange 
proposes through this filing to amend legacy rules that retain the 
concept of the Exchange market maker as agent.
Proposed Rule Changes
    Certain Exchange rules contain language that refers to the DMM 
``holding,'' ``receiving,'' and/or ``accepting'' orders. These concepts 
were consistent with the role performed by former specialist but are 
inconsistent with the role of the DMM. The Exchange therefore proposes 
to amend NYSE Alternext Rules 13 (``Definitions of Orders''), 91 
(``Taking or Supplying Securities Named in Order''), 123A 
(``Miscellaneous Requirements'') and 123B (``Exchange Automated Order 
Routing Systems'') to remove this concept.
    Specifically, the Exchange proposes to delete the Supplementary 
Material .10 of NYSE Alternext Rule 13 in its entirety to remove 
language that provides a DMM must accept any order given to him, unless 
he obtains Floor Official approval to decline an order. The Exchange 
further seeks to remove the phrase ``the DMM via'' \14\ from 
Supplementary Material .40 of NYSE Alternext Rule 91 that governs a DMM 
making a proprietary trade against an order, but retain the procedural 
provisions. In Supplementary Material to Rule 123A, the Exchange 
proposes to delete .10 (``Limited orders-Market orders'') since it 
speaks to a member giving an order to the DMM. The first paragraph of 
.20 (``Sending orders to DMMs'') in that rule is proposed for deletion 
as it governs members and member organizations transmitting orders to 
DMMs. The Exchange further proposes to amend .20 of NYSE Alternext Rule 
123A to: (i) Delete the concept of orders being sent to the DMMs; and 
(ii) change the title to ``Changes in Day Orders'' which reflects the 
retained material. Similarly, Supplementary Material .31 (``Orders sent 
to representatives''), .32 (``Report not received''), .33 (``Addressed 
order or order handed to DMM''), .34 (``Unaddressed order''), .35 
(``Erroneous statement''), .36 (``Legibility of orders''), .37 
(``Identity of stock''), .38 (``Reports, written and oral'') and .39 
(``Duplicate reports'') of NYSE Alternext \15\ Rule 123A are proposed 
for deletion as they speak to transmitting or giving orders to DMMs, 
DMMs receiving orders, DMMs giving reports on orders, and similar 
provisions.
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    \14\ See e-mail from Deanna G. W. Logan, Managing Director, NYSE 
Regulation, Inc., to David Liu, Assistant Director, Division of 
Trading and Markets, Commission, dated February 13, 2009 (making 
technical edits) (``February 13th e-mail'').
    \15\ See February 13th e-mail, supra, note 14.
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    In addition, the Exchange proposes to delete NYSE Alternext Rule 
123B(b)(2)(B) because it speaks of orders received by the DMM through 
the Designated Order Turnaround System and to erroneous reports sent by 
the DMM on executions. These functions are no longer handled in this 
manner. As previously explained, order acceptance and reports of 
executions are handled by Exchange systems. The Exchange also proposes 
to delete NYSE Alternext Rule 123B(d) because it describes orders being 
sent to and executed by the DMM.
    The Exchange also proposes to amend paragraph (2)(A) of Rule 
123B(b) to have it apply to all members if the member makes an 
erroneous report of the price of a transaction, by substituting the 
word ``member'' for the word ``broker'' in the rule. This will then 
include situations in which a DMM makes an erroneous report as to price 
on a transaction.
    NYSE Alternext \16\ Rule 92(d)(6) (``Limitations on Members' 
Trading Because of Customers' Orders'') is further proposed for 
deletion as it restricts DMM proprietary trading during the hours the 
Exchange is closed. The restriction was predicated on the former 
specialist system where the specialist had knowledge of customer orders 
in his or her possession. The restriction is obviated by the fact that 
the DMM no longer ``holds'' customer orders. Nevertheless, as members, 
DMMs will continue to be subject to the rule's general prohibition. 
Similarly, the last sentence of NYSE Alternext Rule 127(d)(3) (``Block 
Crosses Outside the Prevailing NYSE Quotation'') is proposed for 
deletion because it also is predicated on the DMM retaining stock for 
the DMM's own account at a price at which the DMM ``holds'' unexecuted 
customer orders.\17\
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    \16\ Id.
    \17\ Id.
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    The Exchange believes that the amendments proposed herein to remove 
legacy rule language that is inconsistent with the role of the DMM as 
approved by the Commission in the New Market Model filing are necessary 
to adequately reflect the functions performed by the DMM.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\18\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\19\ 
in particular, in that it is designed

[[Page 8605]]

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. 
The Exchange believes the proposed rule changes are consistent with 
these principles in that it amends legacy rules to accurately reflect 
the role performed by the Exchange's market maker thus removing 
impediments to and perfecting the mechanism of a free and open market.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 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 foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms, does not become operative for 30 days after the 
date of 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 \20\ and Rule 19b-4(f)(6) thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing.\22\ However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requested that the Commission waive 
the 30-day operative delay and designate the proposed rule change 
operative upon filing.
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    \22\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the self-regulatory organization to give the 
Commission 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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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The proposed rule change seeks to remove legacy language that is 
inconsistent with the role performed by DMMs as approved by the 
Commission in NYSE's New Market Model filing,\23\ which also applies to 
DMMs on Alternext. Furthermore, it seeks to clarify its rule text in 
order to avoid any undue confusion on the part of Exchange market 
participants as it relates to the function performed by DMMs. 
Therefore, the Commission designates the proposal operative upon 
filing.\24\
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    \23\ See supra note 10.
    \24\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 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 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.\25\
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    \25\ 15 U.S.C. 78s(b)(3)(C).
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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 Number SR-NYSEALTR-2009-09 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-NYSEALTR-2009-09. 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, 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 inspection 
and copying in the Commission's Public Reference Room 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 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-NYSEALTR-2009-09 and should be submitted on or before 
March 18, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-3981 Filed 2-24-09; 8:45 am]

BILLING CODE 8011-01-P