Document ID: SEC-2012-0674-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Amex LLC
Posted Date: 2012-05-01T04:00Z

[Federal Register Volume 77, Number 84 (Tuesday, May 1, 2012)]
[Notices]
[Pages 25770-25773]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-10391]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66857; File No. SR-NYSEAmex-2012-23]

Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of 
Proposed Rule Change Amending NYSE Amex Options Rule 928NY Specifying 
That the Potential Range for the Settings Applicable to the Market 
Maker Risk Limitation Mechanism Will Be Between One and 100 Executions 
per Second, To Eliminate the Current Reference to the Default Setting 
and, in the Future, To Specify the Applicable Minimum, Maximum and 
Default Settings via Regulatory Bulletin

April 25, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\

[[Page 25771]]

notice is hereby given that on April 12, 2012, NYSE Amex LLC (the 
``Exchange'' or ``NYSE Amex'') filed with the Securities and Exchange 
Commission (``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\ 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 Amex Options Rule 928NY to 
specify that the potential range for the settings applicable to the 
Market Maker Risk Limitation Mechanism (``Mechanism'') will be between 
one and 100 executions per second, to eliminate the current reference 
to the default setting and, in the future, to specify the applicable 
minimum, maximum and default settings via Regulatory Bulletin. The text 
of the proposed rule change is available at the Exchange, the 
Commission's Public Reference Room, and 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend NYSE Amex Options Rule 928NY to 
specify that the potential range for the settings applicable to the 
Mechanism will be between one and 100 executions per second, to 
eliminate the current reference to the default setting and, in the 
future, to specify the applicable minimum, maximum and default settings 
via Regulatory Bulletin.
    The Mechanism protects Market Makers from the risk associated with 
an excessive number of nearly simultaneous executions in a single 
option class.\3\ Specifically, if ``n'' executions occur within one 
second against the Market Maker's quotes in an appointed class, the 
NYSE Amex System automatically cancels all quotes posted by the Market 
Maker in that class.
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    \3\ See Securities Exchange Act Release No. 59472 (February 27, 
2009), 74 FR 9843 (March 6, 2009) (SR-NYSEALTR-2008-14).
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    The Mechanism currently defaults the ``n'' number of executions to 
50 executions per second.\4\ However, a Market Maker may instead set 
the ``n'' number of executions between five and 100 executions per 
second.\5\ The Exchange proposes to decrease the low end of this range 
from five to one.\6\ The Exchange also proposes to eliminate the 
reference to the default setting that is applicable to the Mechanism. 
In addition, the Exchange proposes that, in the future, it will specify 
the applicable minimum, maximum and default settings for the Mechanism 
via Regulatory Bulletin, all of which would be within the proposed 
range of one to 100 executions per second.\7\
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    \4\ See NYSE Amex Options Rule 928NY(b)(1).
    \5\ See NYSE Amex Options Rule 928NY(b)(2).
    \6\ The high end of the range would remain unchanged at 100 
executions per second.
    \7\ See proposed NYSE Amex Options Rule 928NY(b)(1). The 
Exchange proposes to designate NYSE Amex Options Rule 928NY(b)(2) as 
``reserved.''
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    The Exchange believes that this proposed change would provide the 
Exchange with greater flexibility with respect to changing these 
settings in the future. In particular, the Exchange may need to change 
the settings from time to time to accommodate systems capacity 
concerns. The Exchange believes that specifying these settings via 
Regulatory Bulletin, instead of within NYSE Amex Options Rule 928NY, is 
consistent with the manner in which the Commission currently permits 
other option exchanges to communicate settings or parameters for 
various exchange mechanisms to their members other than through the 
rule filing process, i.e., via notices, bulletins or circulars.\8\
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    \8\ See, e.g., Chapter VI, Section 16 of the Boston Options 
Exchange (``BOX'') Rules, which provides that, related to BOX's 
Quote Removal Mechanism Upon Technical Disconnect, BOX Market Makers 
will be notified of the value that ``n'' seconds represents via 
Regulatory Circular. See also Securities Exchange Act Release No. 
58140 (July 10, 2008), 73 FR 41384 (July 18, 2008) (SR-BSE-2008-40), 
in which the Commission noted [sic] that ``n'' seconds would be 
configurable by BOX and any subsequent re-configurations will be 
announced to Market Makers via Regulatory Circular. See also 
Interpretation and Policy .05 to Chicago Board Options Exchange 
(``CBOE'') Rule 6.74A, which provides that any determinations made 
by CBOE regarding CBOE's Automated Improvement Mechanism, such as 
eligible classes, order size parameters and the minimum price 
increment for certain responses, shall be communicated in a 
Regulatory Circular. See also CBOE Rule 6.13(b)(i)(C)(2)(a), which 
provides that CBOE may establish certain maximum order size 
eligibility requirements with respect to automatic executions and 
announce such determinations via Regulatory Circular. See also CBOE 
Rules 6.45A and 6.45B, which provide that CBOE will issue a 
Regulatory Circular to specify certain priority-related information, 
including specifying which priority rules will govern which classes 
of options any time the Exchange changes the priority. See also CBOE 
Rule 6.25(a)(4)(i), which provides that, for purposes of nullifying 
a trade due to an erroneous print in an underlying or related 
instrument, CBOE may announce such underlying or related instrument 
via Regulatory Circular. See also C2 Options Exchange (``C2'') Rule 
6.13, which provides that C2 may make certain determinations 
regarding the price check parameter feature and announce such 
determinations via Regulatory Circular. See also Securities Exchange 
Act Release No. 65311 (September 9, 2011), 76 FR 57094 (September 
15, 2011) (SR-C2-2011-018).
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    The Exchange anticipates announcing via Regulatory Bulletin that 
the applicable minimum, maximum and default settings for the Mechanism 
will be decreased to 2, 50 and 5 executions per second, respectively. 
The Exchange believes that decreasing these settings would provide 
Market Makers with greater flexibility with respect to managing their 
risk on the Exchange, consistent with the flexibility available on 
other option markets. In this regard, the Exchange understands that the 
Commission has previously permitted similar risk mechanisms to be 
implemented on other option exchanges without requiring any applicable 
minimum, maximum and/or default settings in the exchanges' 
corresponding rules.\9\
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    \9\ See, e.g., Chapter VI, Section 15 of the BOX Rules, which 
provides for Automatic Quote Cancellation. See also Securities 
Exchange Act Release No. 65001 (August 1, 2011), 76 FR 47635 (August 
5, 2011) (SR-BX-2011-050). See also Supplementary Material .01 to 
International Securities Exchange (``ISE'') Rule 804, which provides 
for Automated Quotation Adjustments for Market Makers.
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    The Exchange is not proposing any other changes to the Mechanism at 
this time.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the 
``Act''),\10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\11\ in particular, because 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 regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to

[[Page 25772]]

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 and because it is not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    In particular, the proposed rule change would prevent fraudulent 
and manipulative acts and practices and promote just and equitable 
principles of trade because it would continue to provide Market Makers 
with greater control and flexibility with respect to managing risk and 
the manner in which they enter quotes. The Exchange believes that this 
increased control and flexibility also fosters cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
and processing information with respect to, and facilitating 
transactions in, securities. The Exchange further believes that the 
proposed rule change would remove impediments to and perfect the 
mechanisms of a free and open market and a national market system 
because it would permit the Exchange to adjust the minimum, maximum and 
default settings for the Mechanism via Regulatory Bulletin, which would 
be consistent with the manner in which other option exchanges are 
permitted to communicate settings or parameters for various exchange 
mechanisms to their members other than through the rule filing process, 
i.e., via notices, bulletins or circulars.\12\ The Exchange further 
believes that the proposed rule change is consistent with, and furthers 
the objectives of, the Act because it would permit the Exchange to 
increase or decrease the minimum, maximum and default settings from 
their current levels, should the Exchange choose to do so, for example, 
to accommodate systems capacity concerns.\13\ The Exchange also 
believes that specifying the applicable minimum, maximum and default 
settings for the Mechanism via Regulatory Bulletin would further remove 
impediments to and perfect the mechanisms of a free and open market by 
reducing the resources that would otherwise be expended, by both the 
Exchange and the Commission, if the Exchange is required to propose a 
rule change with the Commission each time it wishes to change the 
settings.
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    \12\ See supra note 8.
    \13\ As noted above, the Exchange anticipates that the current 
minimum, maximum and default settings will be decreased to 2, 50 and 
5 executions per second, respectively. The Exchange understands that 
the Commission has previously permitted similar risk mechanisms to 
be implemented on other option exchanges without any applicable 
minimum, maximum and/or default settings in the exchanges' 
corresponding rules. See supra note 9.
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    The Exchange believes that the proposed decrease of the low end of 
the range of the Mechanism's settings to one execution per second would 
continue to reasonably ensure that, consistent with their obligations, 
Market Makers maintain a quote on the Exchange. In this regard, the 
Exchange notes that the proposed rule change would not relieve Market 
Makers on the Exchange of their quoting obligations under the 
Exchange's Rules.\14\ As is the case today, a Market Maker quote that 
is cancelled would no longer count toward satisfying the Market Maker's 
percentage quoting obligation under NYSE Amex Options Rule 925NY. The 
Exchange further notes that the proposed rule change would not relieve 
a Market Maker of its ``firm quote'' obligation under Rule 602 of 
Regulation NMS \15\ or NYSE Amex Options Rule 970NY, thereby promoting 
the protection of investors and the public interest.
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    \14\ See, e.g., NYSE Amex Options Rule 925NY.
    \15\ 17 CFR 242.602.
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    The Exchange further believes that the proposed rule change is not 
unfairly discriminatory because the same minimum, maximum and default 
settings would be applicable to all Market Makers and because the 
settings would be announced via Regulatory Bulletin to all Market 
Makers at the same time.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSEAmex-2012-23 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-NYSEAmex-2012-23. This 
file number should be included on the subject line if email 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 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. The text of the proposed rule change is available on 
the Commission's Web site at http://www.sec.gov. 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

[[Page 25773]]

should refer to File Number SR-NYSEAmex-2012-23 and should be submitted 
on or before May 22, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-10391 Filed 4-30-12; 8:45 am]
BILLING CODE 8011-01-P