Document ID: SEC-2012-0864-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-06-04T04:00Z

[Federal Register Volume 77, Number 107 (Monday, June 4, 2012)]
[Notices]
[Pages 33010-33013]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13405]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67066; File No. SR-NYSEArca-2012-46]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Regarding the 
Extension of Unlisted Trading Privileges to New Derivative Securities 
Products That Are Listed on Another Exchange and To Make Other 
Conforming and Technical Amendments

May 29, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on May 16, 2012, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') 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 Exchange. The Exchange has 
designated the proposed rule change as constituting a rule change under 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposal effective upon filing with the Commission. 
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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 Arca Equities Rule 5.1(a) to 
set forth rules regarding the extension of unlisted trading privileges 
(``UTP'') to a new derivative securities product that is listed on 
another exchange and to make other conforming and technical amendments. 
The text of the proposed rule change is available on the Exchange's Web 
site at www.nyse.com, at the principal office of the Exchange, and at 
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
    The Exchange proposes to amend NYSE Arca Equities Rule 5.1(a) to 
set forth rules regarding the extension of UTP to a new derivative 
securities product \5\ that is listed on another exchange and to make 
other technical and conforming amendments. The purpose of the proposed 
rule change is to amend the Exchange's rules to consolidate into a 
single rule certain requirements for trading products on the Exchange 
pursuant to UTP that have been established in various new product 
proposals previously approved by the Commission.
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    \5\ A ``new derivative securities product'' means any type of 
option, warrant, hybrid securities product or any other security, 
other than a single equity option or a security futures product, 
whose value is based, in whole or in part, upon the performance of, 
or interest in, an underlying instrument. See 17 CFR 240.19b-4(e).
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    Under current NYSE Arca Equities Rule 5.1, only listed or UTP 
securities may be dealt in on the Corporation. Securities may be listed 
or admitted to UTP on a ``when issued'' or ``when distributed'' basis. 
The Exchange proposes to clarify the Rule by putting the current text 
of the Rule in a new subparagraph (a)(1) and adding text to note that a 
security must be eligible for UTP under Section 12(f) of the Securities 
Exchange Act of 1934 (the ``Act''). The Exchange also proposes to add 
text that would provide that unlisted trading privileges may be 
extended to any security that is an NMS Stock (as defined in Rule 600 
of Regulation NMS under the Act) that is listed on another national 
securities exchange and any such security would be subject to all the 
Exchange trading rules applicable to NMS Stocks, unless otherwise 
noted.
    The Exchange proposes to add a new Rule 5.1(a)(2) to govern new 
derivative securities products. Any new derivative securities product 
would be subject to all Exchange trading rules applicable to equity 
securities, unless otherwise noted. Under proposed NYSE Arca Equities 
Rule 5.1(a)(2)(i), the Exchange would file a Form 19b-4(e) with the 
Commission for any security that is a

[[Page 33011]]

new derivative securities product as defined in Rule 19b-4(e) under the 
Act.\6\
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    \6\ See supra note 5.
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    Under proposed NYSE Arca Equities Rule 5.1(a)(2)(ii), the Exchange 
would distribute an information circular prior to the commencement of 
trading in such a new derivative securities product that generally 
would include the same information as the information circular provided 
by the listing exchange, including (1) the special risks of trading the 
new derivative securities product, (2) the Exchange's rules that will 
apply to the new derivative securities product, including the 
suitability rule,\7\ (3) information about the dissemination of value 
of the underlying assets or indices, and (4) the risk of trading during 
irregular trading hours due to the lack of calculation or dissemination 
of the intraday indicative value or a similar value.
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    \7\ See NYSE Arca Equities Rule 9.2(a)(2).
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    Proposed NYSE Arca Equities Rule 5.1(a)(2)(iii) would remind ETP 
Holders \8\ that they are subject to the prospectus delivery 
requirements under the Securities Act of 1933, as amended (the 
``Securities Act''), unless the new derivative securities product is 
the subject of an order by the Commission exempting the product from 
certain prospectus delivery requirements under Section 24(d) of the 
Investment Company Act of 1940, as amended (the ``1940 Act''), and the 
product is not otherwise subject to prospectus delivery requirements 
under the Securities Act. The Exchange would inform its ETP Holders 
regarding the application of the provisions of this new subparagraph to 
a particular series of exchange-traded funds governed by the 1940 Act 
by means of an information circular.
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    \8\ The term ``ETP Holder'' refers to a sole proprietorship, 
partnership, corporation, limited liability company or other 
organization in good standing that has been issued an Equity Trading 
Permit. An ETP Holder must be a registered broker or dealer pursuant 
to Section 15 of the Act. See NYSE Arca Equities Rule 1(n).
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    Proposed NYSE Arca Equities Rule 5.1(a)(2)(iv) would address 
trading halts in the new derivative securities products traded on the 
Exchange pursuant to UTP. Under the proposed rule change, if a 
temporary interruption occurs in the calculation or wide dissemination 
of the intraday indicative value (or similar value) or the value of the 
underlying index or instrument and the listing market halts trading in 
the product, the Exchange, upon notification by the listing market of 
such halt due to such temporary interruption, also would immediately 
halt trading in that product on the Exchange. If the intraday 
indicative value (or similar value) or the value of the underlying 
index or instrument continues not to be calculated or widely available 
as of the commencement of trading on the Exchange on the next business 
day, the Exchange would not commence trading of the product that day. 
If an interruption in the calculation or wide dissemination of the 
intraday indicative value (or similar value) or the value of the 
underlying index or instrument continues, the Exchange could resume 
trading in the product only if calculation and wide dissemination of 
the intraday indicative value (or similar value) or the value of the 
underlying index or instrument resumes or trading in such series 
resumes in the listing market. The Exchange also would halt trading in 
a new derivative securities product listed on the Exchange for which a 
net asset value (and in the case of managed fund shares or actively 
managed exchange-traded funds, a ``disclosed portfolio'') is 
disseminated if the Exchange became aware that the net asset value or, 
if applicable, the disclosed portfolio was not being disseminated to 
all market participants at the same time. The Exchange would maintain 
the trading halt until such time as the Exchange became aware that the 
net asset value and, if applicable, the disclosed portfolio was 
available to all market participants. Nothing in the proposed rule 
would limit the power of the Exchange under the Rules (including 
without limitation Rules 7.12, 7.13, 7.18, and 7.34) or procedures of 
the Exchange with respect to the Exchange's ability to suspend trading 
in any securities if such suspension is necessary for the protection of 
investors or in the public interest.
    Proposed NYSE Arca Equities Rule 5.1(a)(v) would provide for 
restrictions for any ETP Holder registered as a Market Maker in a new 
derivative securities product that derives its value from one or more 
currencies, commodities, or derivatives based on one or more currencies 
or commodities, or is based on a basket or index composed of currencies 
or commodities (collectively, ``Reference Assets''). Specifically, the 
ETP Holder acting as a registered Market Maker in a new derivative 
securities product must file with the Exchange, in a manner prescribed 
by the Exchange, and keep current a list identifying all accounts for 
trading the underlying physical asset or commodity, related futures or 
options on futures, or any other related derivatives, which the ETP 
Holder acting as registered Market Maker may have or over which it may 
exercise investment discretion. No ETP Holder acting as registered 
Market Maker in the new derivative securities product shall trade in 
the underlying physical asset or commodity, related futures or options 
on futures, or any other related derivatives, in an account in which an 
ETP Holder acting as a registered Market Maker, directly or indirectly, 
controls trading activities, or has a direct interest in the profits or 
losses thereof, which has not been reported to the Exchange as required 
by this Rule. A Market Maker would be required, in a manner prescribed 
by the Exchange, to file with the Exchange and keep current a list 
identifying any accounts (``Related Instrument Trading Accounts'') for 
which Related Instruments are traded (1) in which the Market Maker 
holds an interest, (2) over which it has investment discretion, or (3) 
in which it shares in the profits and/or losses. In addition, a Market 
Maker would not be permitted to have an interest in, exercise 
investment discretion over, or share in the profits and/or losses of a 
Related Instrument Trading Account that has not been reported to the 
Exchange as required by the proposed rule. In addition to the existing 
obligations under Exchange rules regarding the production of books and 
records, a Market Maker would be required, upon request by the 
Exchange, to make available to the Exchange any books, records, or 
other information pertaining to any Related Instrument Trading Account 
or to the account of any registered or non-registered employee 
affiliated with the Market Maker for which Related Instruments are 
traded. Finally, a Market Maker could not use any material nonpublic 
information in connection with trading a Related Instrument.
    The Exchange represents that its surveillance procedures for new 
derivative securities products traded on NYSE Arca Equities pursuant to 
UTP would be similar to the procedures used for equity securities 
traded on the Exchange and would incorporate and rely upon existing 
Exchange surveillance systems. The Exchange would closely monitor 
activity in new derivative securities products traded on the Exchange 
pursuant to UTP and deter any potential improper trading activity. The 
proposed rule change also provides that the Exchange would enter into a 
comprehensive surveillance sharing agreement (``CSSA'') with a market 
that trades components of the index or portfolio on which the new 
derivative securities product is based to the same extent that the 
listing exchange's rules require the listing market to enter into a 
CSSA with such market.

[[Page 33012]]

    Lastly, the Exchange proposes to remove references in NYSE Arca 
Equities Rule 5.2(j)(3) Commentaries .01, .02, and .03; Rule 8.100 
Commentaries .01, .02, and .03; and Rule 8.202 Commentary .04 that 
refer to the current UTP policy. The Exchange proposes to delete these 
references as they will be rendered obsolete by the proposed rule 
change or are unnecessary. The proposed deletions address the 
dissemination of information, surveillance procedures, and disclosures 
that are addressed by the proposed rule change, or cross-reference the 
Exchange's trading hours in a manner that is unnecessary. The Exchange 
also proposes to amend the definitions of ``UTP Listing Market'' in 
NYSE Arca Equities Rules 1(jj) and to amend the provisions for UTP 
regulatory halts in NYSE Arca Equities 7.18 to reflect that securities 
traded UTP may be listed on any exchange.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\9\ in general and furthers the objectives of Section 6(b)(5) \10\ in 
particular 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, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. The proposed rule change also is 
consistent with Section 11A(a)(1) of the Act,\11\ in that it seeks to 
ensure the economically efficient execution of securities transactions 
and fair competition among brokers and dealers and among exchange 
markets, and Section 12(f) of the Act,\12\ which governs the trading of 
securities pursuant to UTP consistent with the maintenance of fair and 
orderly markets, the protection of investors and the public interest, 
and the impact of extending the existing markets for such securities. 
The Exchange believes that the proposed amendment is consistent with 
the goal of removing impediments to a free and open market because it 
will harmonize NYSE Arca's UTP policy with rules of other exchanges, 
further promote fair competition in trading among exchanges, and be 
consistent with the requirements for UTP under the Act.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78k-1(a)(1).
    \12\ 15 U.S.C. 78l(f).
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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 Other

    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 does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, 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 \13\ and Rule 19b-4(f)(6) 
thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change along with a 
brief description and the 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay. The Commission believes that such waiver is consistent with the 
protection of investors and the public interest because such waiver 
should benefit investors by creating, without undue delay, additional 
competition in the trading of new derivative securities products, 
subject to consistent and reasonable standards. Proposed NYSE Arca 
Equities Rule 5.1(a) is closely modeled after similar rules of other 
national securities exchanges \15\ and does not raise any novel or 
significant regulatory issues. Therefore, the Commission designates the 
proposed rule change as operative upon filing.
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    \15\ See BATS Exchange Rule 14.1 and Securities Exchange Act 
Release No. 58623 (September 23, 2008), 73 FR 57169 (October 1, 
2008) (SR-BATS-2008-004); National Stock Exchange Rule 15.9 and 
Securities Exchange Act Release No. 57448 (March 6, 2008), 73 FR 
13597 (March 13, 2008) (SR-NSX-2008-05); NASDAQ OMX PHLX Rule 803(o) 
and Securities Exchange Act Release No. 57806 (May 9, 2008), 73 FR 
28541 (May 16, 2008) (SR-Phlx-2008-34); NASDAQ Marketplace Rule 5740 
and Securities Exchange Act Release No. 59663 (March 31, 2009), 74 
FR 15552 (April 6, 2009) (SR-NASDAQ-2009-018).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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.

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 Exchange 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-NYSEArca-2012-46 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-NYSEArca-2012-46. 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. Copies of the 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

[[Page 33013]]

submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NYSEArca-2012-46 and should be submitted on or before June 25, 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. 2012-13405 Filed 6-1-12; 8:45 am]
BILLING CODE 8011-01-P