Document ID: SEC-2010-1869-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Amex LLC
Posted Date: 2010-12-09T05:00Z

[Federal Register Volume 75, Number 236 (Thursday, December 9, 2010)]
[Notices]
[Pages 76759-76762]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-30883]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63418; File No. SR-NYSEAmex-2010-108]

Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Eliminate Market 
and Stop Orders in Nasdaq-Listed Securities Traded on the Exchange

December 2, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 76760]]

``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 22, 2010, NYSE Amex LLC (the ``Exchange'' or ``NYSE Amex'') 
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 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 Rule 501--NYSE Amex Equities to 
eliminate Market and Stop Orders in Nasdaq-listed securities traded on 
the Exchange. The text of the proposed rule change is available at the 
Exchange's principal office, the Commission's Public Reference Room, 
and http://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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to amend Rule 501--NYSE 
Amex Equities to eliminate Market and Stop Orders in Nasdaq-listed 
securities traded on the Exchange.

Background

    Rules 500-525--NYSE Amex Equities, as a pilot program, govern the 
trading of any Nasdaq-listed security on the Exchange pursuant to 
unlisted trading privileges (``UTP Pilot Program'').\3\ The UTP Pilot 
Program includes any security listed on Nasdaq that (i) is designated 
as an ``eligible security'' under the Joint Self-Regulatory 
Organization Plan Governing the Collection, Consolidation and 
Dissemination of Quotation and Transaction Information for Nasdaq-
Listed Securities Traded on Exchanges on an Unlisted Trading Privilege 
Basis, as amended (``UTP Plan''),\4\ and (ii) has been admitted to 
dealings on the Exchange pursuant to a grant of unlisted trading 
privileges in accordance with Section 12(f) of the Securities Exchange 
Act of 1934, as amended (the ``Act'') \5\ (collectively, ``Nasdaq 
Securities'').\6\
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    \3\ The UTP Pilot Program is currently scheduled to expire on 
the earlier of Commission approval to make such pilot permanent or 
January 31, 2011. See Securities Exchange Act Release No. 62857 
(September 7, 2010), 75 FR 55837 (September 14, 2010) (SR-NYSEAmex-
2010-89) (Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change to Extend the Pilot Program that Allows Nasdaq Stock 
Market Securities to be Traded on the Exchange Pursuant to UTP). See 
also Securities Exchange Act Release No. 62479 (July 9, 2010), 75 FR 
41264 (July 15, 2010) (SR-NYSEAmex-2010-31) (Notice of Filing of 
Amendment Nos. 2 and 3, and Order Granting Accelerated Approval to a 
Proposed Rule Change, as Modified by Amendment Nos. 1, 2, and 3 
Thereto, To Adopt as a Pilot Program a New Rule Series for the 
Trading of Securities Listed on the Nasdaq Stock Market Pursuant to 
Unlisted Trading Privileges) (``UTP Pilot Program Approval Order'').
    \4\ See Securities Exchange Act Release No. 58863 (October 27, 
2008), 73 FR 65417 (November 3, 2008) (Notice of Filing and 
Immediate Effectiveness of Amendment No. 20 to the UTP Plan). The 
Exchange's predecessor, the American Stock Exchange LLC, joined the 
UTP Plan in 2001. See Securities Exchange Act Release No. 55647 
(April 19, 2007), 72 FR 20891 (April 26, 2007) (S7-24-89). In March 
2009, the Exchange changed its name to NYSE Amex LLC. See Securities 
Exchange Act Release No. 59575 (March 13, 2009), 74 FR 11803 (March 
19, 2009) (SR-NYSEALTR-2009-24).
    \5\ 15 U.S.C. 78l.
    \6\ ``Nasdaq Securities'' is included within the definition of 
``security'' as that term is used in the NYSE Amex Equities Rules. 
See NYSE Amex Equities Rule 3. In accordance with this definition, 
Nasdaq Securities are admitted to dealings on the Exchange on an 
``issued,'' ``when issued,'' or ``when distributed'' basis. See NYSE 
Amex Equities Rule 501.
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Rule 501--NYSE Amex Equities (Definitions)

    Rule 501--NYSE Amex Equities provides certain defined terms, the 
meanings of which are applicable for trading in Nasdaq Securities. All 
other defined terms used in Rules 500-525--NYSE Amex Equities have the 
meanings assigned to them in the NYSE Amex Equities Rules. Rule 
501(e)(2)--NYSE Amex Equities lists specific order types that are not 
accepted for trading in Nasdaq Securities and are therefore not 
considered ``Orders'' under the UTP Pilot Program. The Exchange 
proposes to include ``Market Orders'' and ``Stop Orders'' within Rule 
501(e)(2)--NYSE Amex Equities, therefore eliminating submission of such 
order types in Nasdaq Securities and likewise excluding them from the 
definition of Order under the UTP Pilot Program.

Market and Stop Orders in Nasdaq Securities

    Currently, if the Exchange is at the National Best Bid or Offer 
(``NBBO''), a Market Order submitted in a Nasdaq Security will execute 
against available contra-side liquidity at that best price. If size 
remains unfilled, and another market is similarly at the NBBO, the 
Market Order will route for execution against the away market's 
protected bid or offer, in accordance with Rule 611 of Regulation 
NMS.\7\ If size still remains unfilled after routing, the Market Order 
will return to the Exchange and execute against the depth of the 
Exchange's book, until it is either fully executed or available 
liquidity on the Exchange is depleted. The Exchange notes that, as 
provided under Rule 501(e)(1)(B)--NYSE Amex Equities, a Stop Order to 
buy (sell) becomes a Market Order, and is treated as such for purposes 
of execution and routing, when a transaction in the Nasdaq Security 
occurs on the Exchange at or above (below) the stop price after the 
order is received in to the Exchange's automated order routing system 
or is manually represented by a Floor broker in the Crowd.
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    \7\ 17 CFR 242.611. A protected bid or protected offer means a 
quotation in an NMS stock that: (i) Is displayed by an automated 
trading center; (ii) is disseminated pursuant to an effective 
national market system plan; and (iii) is an automated quotation 
that is the best bid or best offer of a national securities 
exchange, the best bid or best offer of The Nasdaq Stock Market, 
Inc., or the best bid or best offer of a national securities 
association other than the best bid or best offer of The Nasdaq 
Stock Market, Inc. 17 CFR 242.600(b)(57).
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    Nasdaq Securities are thinly traded on the Exchange, which is not 
the primary listing market, and account for less than 1% of total 
volume in such securities across all markets. This lack of depth in 
liquidity combined with the manner in which Market Orders (and Stop 
Orders that become Market Orders) in Nasdaq Securities execute, route 
and re-execute at the Exchange, creates the potential for multiple 
rapid executions on the Exchange at increasingly inferior prices, until 
the Market Order (or Stop Order that becomes a Market Order) is fully 
executed. Submission of a large Market Order in a Nasdaq Security that 
results in several executions on the Exchange at increasingly inferior 
prices could potentially trigger individual stock volatility trading 
pauses,\8\ raise questions of whether the execution should be busted 
under the Exchange's clearly erroneous rule \9\ or create other

[[Page 76761]]

potentially harmful market-wide implications.
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    \8\ See Rule 80C--NYSE Amex Equities (Trading Pauses in 
Individual Securities Due to Extraordinary Market Volatility).
    \9\ See Rule 128--NYSE Amex Equities (Clearly Erroneous 
Executions For NYSE Amex Equities).
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    This is not a concern with respect to trading Exchange-Listed 
Securities because of the operation of Liquidity Replenishment Points 
(``LRPs'').\10\ LRPs are pre-determined price points that temporarily 
convert the automatic Exchange market to an auction market when it is 
experiencing a large price movement based on a security's typical 
trading characteristics or market conditions over short periods of time 
during the trading day. LRPs work to dampen volatility and allow the 
Designated Market Maker (``DMM'') assigned to such security to solicit 
additional liquidity. However, LRPs are not applicable to trading in 
Nasdaq Securities, and are therefore unavailable as a means to impede 
or prevent these multiple rapid executions at increasingly inferior 
prices. The Exchange believes that the elimination proposed herein is 
an appropriate measure to reduce the potential for erroneous executions 
and individual stock volatility trading pauses in Nasdaq Securities 
until such time as other volatility curbs are in place.
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    \10\ See Rule 1000(a)(iv)--NYSE Amex Equities.
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    The Exchange believes that the elimination of Market and Stop 
Orders in Nasdaq Securities would not hinder the ability of members and 
member organizations to seek execution of their orders. On average, 
only 113 Market Orders and 27 Stop Orders in Nasdaq Securities are 
submitted to the Exchange each trading day, accounting for less than 
0.0060% and 0.0014%, respectively, of the Exchange's 1,971,439 average 
daily orders in Nasdaq Securities. Upon implementation of the proposed 
rule change, members and member organizations could continue to utilize 
several other existing order types, under Rule 13--NYSE Amex Equities, 
for execution of their orders. The Exchange believes that, despite the 
relative infrequency in which they are submitted, the potentially 
harmful regulatory effects created by Market Orders (and Stop Orders 
that become Market Orders) in Nasdaq Securities requires that they be 
eliminated on the Exchange.
    Accordingly, the Exchange proposes to eliminate the ability to 
enter Market and Stop Orders. As proposed, an order in a Nasdaq 
Security would be systematically rejected if submitted as a Market or 
Stop Order. A member or member organization whose Market or Stop Order 
is rejected would be required to re-submit the order to the Exchange, 
if it all, as one of several permissible order types provided under 
Rule 13--NYSE Amex Equities.

Rule 501(e)(1)(B)--Stop Order

    The proposed inclusion of Stop Orders within Rule 501(e)(2)--NYSE 
Amex Equities would require that Rule 501(e)(1)(B)--NYSE Amex Equities 
be deleted. Rule 501(e)--NYSE Amex Equities modifies the meaning of 
certain order types, including Stop Orders, as these terms are defined 
under Rule 13--NYSE Amex Equities. Because the Exchange proposes to no 
longer accept Stop Orders for trading in Nasdaq Securities, a modified 
definition thereof is no longer necessary or appropriate. The Exchange 
therefore proposes to delete Rule 501(e)(1)(B)--NYSE Amex Equities in 
its entirety.
    The Exchange will implement the system changes to no longer accept 
Stop and Market Orders on or about December 6, 2010, but in no event, 
any later than December 13, 2010, and will notify market participants 
in advance when the change will be implemented.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\12\ in particular, in that it is designed 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. 
Specifically, the changes proposed herein would contribute to improving 
the quality of executions in Nasdaq Securities on the Exchange and 
avoiding executions of Nasdaq Securities at inferior prices.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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 rule 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). In addition, Rule 19b-4(f)(6)(iii) 
requires that a self-regulatory organization submit to the 
Commission written 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 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 Exchange has requested that the Commission waive the 30-day 
operative delay so that the Exchange can eliminate market and stop 
orders in Nasdaq-listed securities traded on the Exchange immediately. 
The Exchange has represented that the elimination of market and stop 
orders in Nasdaq-listed securities should lessen the potential for 
multiple rapid executions on the Exchange at inferior prices as a 
result of the lack of depth in liquidity for Nasdaq-listed securities 
on the Exchange, and should therefore reduce the potential for 
erroneous executions and individual stock volatility trading pauses in 
Nasdaq-listed securities. In light of the benefits afforded by this 
reduced potential, the Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest.\15\
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    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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 such 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 Act.

[[Page 76762]]

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-NYSEAmex-2010-108 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-2010-108. 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 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 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NYSEAmex-2010-108 and should be submitted on or before December 30, 
2010.

    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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-30883 Filed 12-8-10; 8:45 am]
BILLING CODE 8011-01-P