Document ID: SEC-2011-0909-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Amex LLC
Posted Date: 2011-06-29T04:00Z

[Federal Register Volume 76, Number 125 (Wednesday, June 29, 2011)]
[Notices]
[Pages 38240-38243]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16228]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64732; File No. SR-NYSEAmex-2011-40]

Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Include Text in 
Its Options Rules Governing the Use of Its Affiliate Broker-Dealer, 
Archipelago Securities LLC for Outbound Routing of Option Orders, and 
To Adopt Text in Its Options Rules To Permit the Exchange To Receive 
Inbound Routes of Option Orders From Arca Securities, Acting as the 
Outbound Router for NYSE Arca, Inc.

 June 23, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on June 16, 2011, 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 NYSE Amex. 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 (1) To include text in its options rules 
governing the use of its affiliate broker-dealer, Archipelago 
Securities LLC (``Arca Securities''), for outbound routing of option 
orders, and (2) to adopt text in its options rules to permit the 
Exchange to receive inbound routes of option orders from Arca 
Securities, acting as the outbound router for NYSE Arca, Inc. (``NYSE 
Arca''). The text of the proposed rule change is available at the 
Exchange's principal office, at http://www.nyse.com, 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 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 Exchange proposes to include text in its options rules 
governing the use of Arca Securities for outbound routing of option 
orders, and to adopt text in its options rules to permit the Exchange 
to receive inbound routes of option orders from Arca Securities when it 
is acting as the outbound router for NYSE Arca.\3\ The Exchange notes 
that it currently uses third-party broker-dealers to route orders to 
other options exchanges and to have orders routed to it from other 
options exchanges,

[[Page 38241]]

including NYSE Arca. In an effort to provide more clarity regarding the 
functions of Arca Securities and to provide NYSE Amex with the 
flexibility to use Arca Securities as an outbound and inbound routing 
broker in the future, the Exchange is filing this proposed rule change.
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    \3\ The Exchange's affiliate, NYSE Arca, is proposing a 
substantially similar rule change. See SR-NYSEArca-2011-39.
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Background--Authority To Use Arca Securities as Routing Broker
    NYSE Amex currently has the authority to use Arca Securities as an 
outbound router to send option orders to an away market center for 
execution whenever such routing is required by Exchange Rules and 
Federal securities laws. As noted above, however, the Exchange does not 
currently use Arca Securities for this function. The rules providing 
for this authority are found in the Exchange's equities rules. In 
particular, Rule 13--NYSE Amex Equities defines the term ``Routing 
Broker,'' and Rule 17(c)--NYSE Amex Equities sets forth the conditions 
for the operation of a Routing Broker.\4\ These rules do not currently 
provide NYSE Amex with the authority to have inbound option orders 
routed to it by Arca Securities on behalf of NYSE Arca.
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    \4\ See Securities Exchange Act Release No. 58705 (October 1, 
2008), 73 FR 58995 (October 8, 2008) (SR-Amex-2008-63). Rules 13 and 
17--NYSE Amex Equities permit not only Arca Securities but also 
unaffiliated third-party broker-dealers to perform the outbound 
routing function, which serves as a risk management function in the 
event of a system malfunction or failure. As such, Rule 17--NYSE 
Amex Equities currently refers generically to ``Routing Broker(s),'' 
rather than just Arca Securities.
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Proposed Rule Change
    The Exchange proposes to include text in its options rules 
governing the use of Arca Securities for outbound routing of option 
orders.\5\ This rule text is substantially the same as the rule text in 
Rule 13--NYSE Amex Equities and Rule 17(c)--NYSE Amex Equities. In 
particular, the Exchange proposes to replace the definition of 
``Routing Broker'' found in NYSE Amex Rule 900.2NY(69) with the 
definition of that term found in Rule 13--NYSE Amex Equities. This 
change is designed to provide consistency with respect to rules related 
to the routing function on the Exchange for equity and option orders. 
In addition, the Exchange proposes to adopt in NYSE Amex Rule 993NY(a) 
the text from Rule 17(c)--NYSE Amex Equities. This change would set 
forth in the options rules the conditions for using Arca Securities as 
the outbound routing broker for option orders for the Exchange.
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    \5\ The Exchange notes that the outbound routing function of 
Arca Securities is only available with respect to orders of ATP 
Holders.
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    In addition, the Exchange has previously represented that if Arca 
Securities were to route option orders directly from the Exchange to an 
affiliated market that it would do so only after the affiliated market 
had rules approved that authorize it to receive such routed option 
orders from its broker-dealer affiliate.\6\ The Exchange further 
recognizes that the same would be true in order for the Exchange to 
receive routes of option orders from Arca Securities on behalf of the 
Exchange's affiliate NYSE Arca. In order to address concern that the 
Commission has previously expressed regarding the potential for 
conflicts of interest in instances where a member firm is affiliated 
with an exchange to which it is routing orders, the Exchange hereby 
proposes to accept inbound option orders that its affiliate, Arca 
Securities, routes in its capacity as a facility of NYSE Arca, subject 
to the following limitations and conditions and as reflected in 
proposed Rule 993NY(b). \7\
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    \6\ See Securities Exchange Act Release No. 59473 (February 27, 
2009), 74 FR 9853 (March 6, 2009) (SR-NYSEALTR-2009-18), at note 8.
    \7\ The Exchange notes that the limitations and conditions 
proposed herein would be substantially the same as those applicable 
to the Exchange's current pilot program to accept routes of inbound 
equity orders by Arca Securities, on behalf of the Exchange's 
affiliates NYSE Arca and New York Stock Exchange, LLC (``NYSE''). 
See Securities Exchange Act Release No. 58673 (September 29, 2008), 
73 FR 57707 (October 3, 2008) (SR-Amex-2008-62). See also Securities 
Exchange Act Release No. 58705 (October 1, 2008), 73 FR 58995 
(October 8, 2008) (SR-Amex-2008-63). The Exchange notes that it has 
proposed specific rule text for this inbound equity routing 
functionality, the terms of which are currently generally set forth 
in the Commission's approval orders, rather than rule text, and have 
already been approved in substance by the Commission for the 
Exchange.
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     First, the Exchange will (1) Maintain an agreement 
pursuant to Rule 17d-2 under the Exchange Act with a non-affiliated 
self-regulatory organization (``SRO'') (presently the Financial 
Industry Regulatory Authority (``FINRA'')) to relieve the Exchange of 
regulatory responsibilities for Arca Securities with respect to rules 
that are common rules between the Exchange and the non-affiliated SRO, 
and (2) maintain a regulatory services agreement with a non-affiliated 
SRO (presently FINRA) to perform regulatory responsibilities for Arca 
Securities for unique Exchange rules.\8\
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    \8\ The Exchange notes that FINRA reviews both inbound and 
outbound routing via Arca Securities pursuant to an existing 17d-2 
agreement and an existing regulatory services agreement. The 
Exchange will review the terms of the regulatory services agreement 
in connection with this proposed rule change, and will amend it to 
reflect the specific terms of this filing.
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     Second, the regulatory services agreement discussed above 
will require the Exchange to provide the non-affiliated SRO with 
information, in an easily accessible manner, regarding all exception 
reports, alerts, complaints, trading errors, cancellations, 
investigations, and enforcement matters (collectively ``Exceptions'') 
in which Arca Securities is identified as a participant that has 
potentially violated Exchange or SEC Rules and of which the Exchange 
becomes aware, and shall require that the non-affiliated SRO provide a 
report, at least quarterly, to the Exchange quantifying all Exceptions 
in which Arca Securities is identified as a participant that has 
potentially violated Exchange or SEC Rules.
     Third, the Exchange, on behalf of the holding company 
owning both the Exchange and Arca Securities, will establish and 
maintain procedures and internal controls reasonably designed to 
prevent Arca Securities from receiving any benefit, taking any action 
or engaging in any activity based on non-public information regarding 
planned changes to Exchange systems, obtained as a result of its 
affiliation with the Exchange, until such information is available 
generally to similarly situated ATP Holders in connection with the 
provision of inbound order routing to the Exchange.
     Fourth, the Exchange may furnish to Arca Securities the 
same information on the same terms that the Exchange makes available in 
the normal course of business to any other ATP Holder.
     Fifth, the inbound routing functionality would operate 
pursuant to a pilot program that would end on September 30, 2011.
    The proposed text within Rule 993NY(b) corresponding to these 
limitations and conditions would be substantially the same as the 
language set forth in the Commission orders applicable to the Exchange, 
as described above, and virtually identical to the inbound router rule 
text already implemented for another exchange.\9\ The Exchange proposes 
that the operation of the inbound routing function would cover all 
types of option orders approved for use on NYSE Arca.
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    \9\ See BATS Rule 2.12. See also Securities Exchange Act Release 
No. 62901 (September 13, 2010), 75 FR 57097 (September 17, 2010) 
(SR-BATS-2010-024).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \10\ of 
the Act, in general, and furthers the

[[Page 38242]]

objectives of Section 6(b)(5),\11\ 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, 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 that 
the proposed rule change, which in part would add specific rule text 
for routing functionality that has already been approved in substance 
by the Commission for the Exchange, would enhance the clarity and 
transparency surrounding such functionality, including the 
responsibilities and obligations attendant therewith, while also 
reflecting the Exchange's ongoing efforts to effectively address the 
concerns previously identified by the Commission regarding the 
potential for informational advantages favoring Arca Securities vis-
[agrave]-vis other non-affiliated Exchange ATP Holders. The Exchange 
also believes that the proposed rule change would support the 
principles of Section 11A(a)(1) of the Act \12\ in that it seeks to 
assure economically efficient execution of securities transactions.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78k-1(a)(1).
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    Additionally, the Exchange believes that the proposal to permit the 
Exchange to receive inbound routes of option orders from Arca 
Securities, acting as the outbound router for NYSE Arca, is consistent 
with previous Commission orders authorizing the Exchange to receive 
inbound routes of equity orders from Arca Securities on behalf of the 
Exchange's affiliate exchanges, NYSE and NYSE Arca. Furthermore, by 
including rule text governing both outbound and inbound routing in 
proposed Rule 993NY, the Exchange would establish a single, central 
location in its Rules describing all option order routing broker 
functions. Additionally, the proposed amendments to align the 
definition of Routing Broker in the Exchange's equity and option rules 
would result in greater consistency in defined terms on the Exchange.

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 proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative for 30 days after the date of the 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 \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).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\15\ 
However, Rule 19b-4(f)(6)(iii)\16\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange requests that the 
Commission waive the 30-day operative delay. The Exchange believes that 
waiver of the 30-day operative delay would provide more clarity and 
transparency in its rule text concerning all of the functions that Arca 
Securities performs on behalf of the Exchange without undue delay. In 
addition, the Exchange notes that the proposal is consistent with the 
rules of another national securities exchange. For these reasons, the 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
and designates the proposed rule change to be operative upon filing 
with the Commission.\17\
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    \15\ 17 CFR 240.19b-4(f)(6)(iii). 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 date of filing 
of the proposed rule change, or such shorter time as designated by 
the Commission. The Exchange has satisfied this requirement.
    \16\ Id.
    \17\ For purposes only of waiving the 30-day operative delay, 
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 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEAmex-2011-40 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-2011-40. 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-

[[Page 38243]]

NYSEAmex-2011-40 and should be submitted on or before July 20, 2011.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16228 Filed 6-28-11; 8:45 am]
BILLING CODE 8011-01-P