Document ID: SEC-2011-1854-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Stock Exchange, Inc.
Posted Date: 2011-11-30T05:00Z

[Federal Register Volume 76, Number 230 (Wednesday, November 30, 2011)]
[Notices]
[Pages 74103-74105]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30816]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65821; File No. SR-NSX-2011-13]

Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Exclude All Rights and Warrants From the Definition of ``Circuit 
Breaker Securities'' and Providing the Appropriate Provisions for an 
Early Scheduled Close

November 23, 2011.
    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 November 18, 2011, National Stock Exchange, Inc. 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 Exchange. The Commission is publishing this notice to 
solicit comment 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

    National Stock Exchange, Inc. (``NSX[supreg]'' or the 
``Exchange''), proposes to amend NSX Rule 11.20 to coordinate its rule 
with those of other markets, by excluding all rights and warrants from 
the definition of ``Circuit Breaker Securities'' and providing the 
appropriate provisions for an early scheduled close.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nsx.com, at the principal office of the 
Exchange, at the Commission's Public Reference Room, and at the 
Commission's Web site at http://www.sec.gov.

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 Exchange 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 these 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 Exchange proposes to amend NSX Rule 11.20B Commentary .05 to 
exclude all rights and warrants from the single stock circuit breaker 
under the rule and add additional direction for when pauses are 
triggered on early closing days. The Commission approved NSX Rule 
11.20B on a pilot basis on June 10, 2010 to provide for trading pauses 
in individual securities due to extraordinary market volatility 
(``Trading Pause'') in all securities included within the S&P 
500[supreg] Index (``S&P 500'') (``Pause Pilot'').\3\ The Exchange 
noted in its filing to adopt NSX Rule 11.20B that during the Pause 
Pilot period it would continue to assess whether additional securities 
need to be added and whether the parameters of NSX Rule 11.20B would 
need to be modified to accommodate trading characteristics of different 
securities. The Exchange subsequently received approval to add to the 
Pause Pilot the securities included in the Russell 1000[supreg] Index 
(``Russell 1000'') and a specified list of Exchange Traded Products 
(``ETPs'').\4\
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    \3\ The Commission approved the Pause Pilot for all equities 
exchanges and FINRA. See Securities Exchange Act Release No. 62252 
(June 10, 2010), 75 FR 34186 (June 16, 2010) (File Nos. SR-BATS-
2010-014; SR-EDGA-2010-01; SR-EDGX-2010-01; SR-BX-2010-037; SR-ISE-
2010-48; SR-NYSE-2010-39; SR-NYSEAmex-2010-46; SR-NYSEArca-2010-41; 
SR-NASDAQ-2010-061; SR-CHX-2010-10; SR-NSX-2010-05; and SR-CBOE-
2010-047) and Securities Exchange Act Release No. 62251 (June 10, 
2010), 75 FR 34183 (June 16, 2010) (SR-FINRA-2010-025).
    \4\ The Commission approved the addition to the Pause Pilot of 
the securities included in the Russell 1000 and ETPs, where 
applicable, for all equities exchanges and FINRA. See Securities 
Exchange Act Release No. 62884 (September 10, 2010), 75 FR 56618 
(September 16, 2010) (File Nos. SR-BATS-2010-018; SR-BX-2010-044; 
SR-CBOE-2010-065; SR-CHX-2010-14; SR-EDGA-2010-05; SR-EDGX-2010-05; 
SR-ISE-2010-66; SR-NASDAQ-2010-079; SR-NYSE-2010-49; SR-NYSEAmex-
2010-63; SR-NYSEArca-2010-61; and SR-NSX-2010-08 and Securities 
Exchange Act Release No. 62883 (September 10, 2010), 75 FR 56608 
(September 16, 2010) (SR-FINRA-2010-033). The Exchange submitted a 
proposed rule change shortly after the addition of the Russell 1000 
securities and ETPs to extend the operation of the Pause Pilot, 
which was set to expire on December 10, 2010, until April 11, 2011. 
See Securities Exchange Act Release No. 63512 (December 9, 2010), 75 
FR 78786 (December 16, 2010) (SR-NSX-2010-17). On March 31, 2011, 
the Exchange submitted a proposed rule change to further extend the 
Pause Pilot until the earlier of August 11, 2011 or the date on 
which a limit up/limit down mechanism to address extraordinary 
market volatility, if adopted, applies. See Securities Exchange Act 
Release No. 64213 (April 6, 2011), 76 FR 20409 (April 12, 2011) (SR-
NSX-2011-04).
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    On June 23, 2011, the Commission approved proposed rule changes of 
the Exchanges to amend certain of their respective rules to expand the 
Pause Pilot to include all remaining NMS stocks (``Phase III 
Securities''), which included rights and warrants.\5\ Unlike the 
original Pause Pilot securities, amended NSX Rule 11.20B applies wider 
percentage price moves to the Phase III Securities before a trading 
pause is triggered.\6\ The changes to NSX Rule 11.20B became effective 
on August 8, 2011.
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    \5\ See Securities Exchange Act Release No. 64735 (June 23, 
2011), 76 FR 38243 (June 29, 2011) (SR-NSX-2011-06, et al.).
    \6\ Under amended NSX Rule 11.20B, a pause is triggered by a 30% 
or more price move in a Phase III Security priced at $1 or higher, 
and by a 50% or more price move to such a security priced less than 
$1. The price of a security is based on the closing price on the 
previous trading day, or, if no closing price exists, the last sale 
reported to the Consolidated Tape on the previous trading day.
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    Since then, the markets have analyzed the nature of the trading 
pauses triggered since adoption of the Pause Pilot and noted that over 
25% of such pauses have occurred in rights and warrants. Further, the 
markets have experienced a significant increase in trading pauses 
involving rights and warrants since the implementation of the Phase III 
Securities, with such pauses representing approximately 52% [sic] all 
trading pauses occurring through the end of August 2011. Rights and 
warrants trade on equity exchanges, but are closely related to call 
options. Rights and warrants entitle owners to purchase shares of stock 
at predetermined prices subject to various timing and other conditions. 
Like options, the price of rights and warrants

[[Page 74104]]

are affected by the price of the underlying stock as well as other 
factors, particularly the volatility of the stock. As a consequence, 
the prices of rights and warrants may move more dramatically than the 
prices of the underlying stocks even when the rights and warrants (and 
the underlying stock) are trading in an orderly manner. This difference 
in trading behavior may result in a scenario whereby the rights and 
warrants trigger the circuit breaker under NSX Rule 11.20B and are 
subject to a trading pause, even while the underlying stock continues 
to trade. This can be particularly true of rights and warrants that 
have low prices. Accordingly, the Exchange is proposing to exclude 
rights and warrants from the trading pause under NSX Rule 11.20B.
    Finally, as a conforming edit, the Exchange has added language to 
address when individual trading pauses would occur on a day of an early 
close. This change ensures the Exchange remains in agreement with the 
other markets with respect to when the pauses will be triggered on 
early closing days.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\7\ in general, and 
furthers the objectives of Section 6(b)(5),\8\ 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 designed to support the principles of 
Section 11A(a)(1) \9\ of the Act in that it seeks to ensure fair 
competition among brokers and dealers and among exchange markets. The 
Exchange believes that the proposed rule meets these requirements 
because it excludes certain securities from the rule's coverage that 
are prone to triggering pauses because of their unique characteristics. 
These securities are unique in that they may move more dramatically 
than the prices of the underlying stocks to which they are related even 
when both securities are trading in an orderly manner. As such, the 
securities that are subject to this proposal may trigger the circuit 
breaker under NSX Rule 11.20B and be subject to a trading pause, even 
while the underlying security continues to trade. Although there is 
little benefit in pausing trading in these securities, such pauses 
sequester regulatory resources that are better applied to the review of 
trading pauses in other securities that have a greater impact on the 
national market system.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78k-1(a)(1).
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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 
result in 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\ 
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 prior to 
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 \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \15\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing.
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    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ 17 CFR 240.19b-4(f)(6)(iii).
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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. 
Including rights and warrants in the pilot program which may trigger a 
circuit breaker and be subject to a trading pause, even while the 
underlying security continues to trade, provides little benefit and has 
the potential to create confusion among investors. Excluding rights and 
warrants from the pilot program should minimize investor confusion that 
could result from temporary trading pauses in these securities. For 
this reason, the Commission designates the proposed rule change as 
operative upon the date of this Notice.\16\
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    \16\ 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 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 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 No. SR-NSX-2011-13 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 No. SR-NSX-2011-13. 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/

[[Page 74105]]

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 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 No. SR-NSX-
2011-13 and should be submitted on or before December 21, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30816 Filed 11-29-11; 8:45 am]
BILLING CODE 8011-01-P