Document ID: SEC-2013-0610-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2013-03-29T04:00Z

[Federal Register Volume 78, Number 61 (Friday, March 29, 2013)]
[Notices]
[Pages 19340-19342]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07314]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69225; File No. SR-NYSE-2013-22]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Deleting Commentary .01 to NYSE Rule 2B, Which Provides an Exception 
Related to the Exchange's Equity Ownership Interest in BIDS Holdings 
L.P.

March 25, 2013.
    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 March 20, 2013, the New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') 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 delete Commentary .01 to NYSE Rule 2B, 
which provides an exception related to the Exchange's equity ownership 
interest in BIDS Holdings L.P. (``BIDS Holdings''). 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to delete Commentary .01 to NYSE Rule 2B, 
which provides an exception related to the Exchange's equity ownership 
interest in BIDS Holdings.
    On January 22, 2009, the Securities and Exchange Commission (the 
``Commission'') approved on a pilot basis the governance structure 
proposed by the Exchange with respect to the New York Block Exchange 
(``NYBX''), an electronic trading facility of the Exchange for NYSE-
listed securities that was established by means of a joint venture 
between the Exchange and BIDS Holdings.\3\ The governance structure 
that was approved is reflected in the Limited Liability Company 
Agreement (the ``LLC Agreement'') of New York Block Exchange LLC (the 
``Company''), the entity that owns and operates

[[Page 19341]]

NYBX. Under the governance structure approved by the Commission, the 
Exchange and BIDS Holdings each own a 50% economic interest in the 
Company. In addition, the Exchange, through its wholly-owned subsidiary 
NYSE Market, Inc., owns less than 10% of the aggregate limited 
partnership interest in BIDS Holdings. BIDS Holdings is the parent 
company of BIDS Trading, L.P. (``BIDS Trading''), which became a member 
organization of the Exchange in connection with the establishment of 
NYBX.
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    \3\ See Securities Exchange Act Release No. 59281 (January 22, 
2009), 74 FR 5014 (January 28, 2009) (SR-NYSE-2008-120) (the 
``Approval Order'').
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    The foregoing ownership arrangements would violate NYSE Rule 2B 
without an exception from the Commission.\4\ First, the Exchange's 
indirect ownership interest in BIDS Trading would violate the 
prohibition in Rule 2B against the Exchange maintaining an ownership 
interest in a member organization. Second, BIDS Trading is an affiliate 
of an affiliate of the Exchange,\5\ which would violate the prohibition 
in Rule 2B against a member of the Exchange having such status. 
Consequently, in approving NYBX, the Commission imposed certain 
limitations and conditions, one of which was set forth in Commentary 
.01 of Rule 2B. That commentary provides that the Exchange and BIDS 
Holdings must establish and maintain procedures and internal controls 
reasonably designed to ensure that BIDS Holdings and its affiliates do 
not have access to certain non-public information relating to the 
Exchange.
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    \4\ NYSE Rule 2B provides, in relevant part, that ``[w]ithout 
prior SEC approval, the Exchange or any entity with which it is 
affiliated shall not, directly or indirectly, acquire or maintain an 
ownership interest in a member organization. In addition, a member 
organization shall not be or become an affiliate of the Exchange, or 
an affiliate of any affiliate of the Exchange. * * * The term 
affiliate shall have the meaning specified in Rule 12b-2 under the 
Act.''
    \5\ Specifically, the Company is an affiliate of the Exchange, 
and BIDS Trading is an affiliate of the Company based on their 
common control by BIDS Holdings. The affiliation in each case is the 
result of the 50% ownership interest in the Company by each of the 
Exchange and BIDS Holdings.
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    In the Approval Order, the Commission permitted an exception to 
these two potential violations of NYSE Rule 2B, subject to a number of 
limitations and conditions as follows: \6\
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    \6\ See Approval Order at 5018. At the time of the Approval 
Order, BIDS Trading had not yet become a member of the Exchange. 
Ibid. (stating that BIDS ``will become a member of NYSE in 
connection with the establishment of NYBX'') (citing Securities 
Exchange Act Release No. 58970 (November 17, 2008), 73 FR 71062 
(November 24, 2008) (SR-NYSE-2008-120) (the ``Notice'') at 71062). 
Accordingly, the limitations and conditions set out in the Approval 
Order only referenced BIDS Holdings. The Exchange has updated the 
limitations and conditions from the Approval Order to reference BIDS 
Trading, where appropriate.
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     First, that NYSE and the Financial Industry Regulatory 
Authority (``FINRA'') enter into an agreement pursuant to Rule 17d-2 
under the Act,\7\ under which FINRA is allocated regulatory 
responsibilities to review BIDS Trading's compliance with certain 
NYSE rules.
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    \7\ 17 CFR 240.17d-2.
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     Second, that NYSE Regulation monitor BIDS Trading for 
compliance with NYSE's trading rules and collect and maintain 
certain related information.\8\
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    \8\ See Approval Order at n.75 (stating that ``NYSE Regulation 
`will collect and maintain the following information of which NYSE 
Regulation staff becomes aware--namely, all alerts, complaints, 
investigations and enforcement actions where BIDS [Trading] (in its 
capacity as an NYSE member) is identified as a participant that has 
potentially violated NYSE or applicable SEC rules--in an easily 
accessible manner so as to facilitate any review conducted by the 
SEC's Office of Compliance Inspections and Examination''') (citing 
the Notice at 71068).
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     Third, that NYSE Regulation provide a report to NYSE's 
Chief Regulatory Officer, on a quarterly basis, that (i) quantifies 
all alerts (of which NYSE Regulation is aware) that identify BIDS 
Trading as a participant that has potentially violated NYSE or 
Commission rules, and (ii) quantifies the number of all 
investigations that identify BIDS Trading as a participant that has 
potentially violated NYSE or Commission rules.
     Fourth, that NYSE and BIDS Holdings establish and 
maintain procedures and internal controls reasonably designed to 
ensure that BIDS Holdings and its affiliates do not have access to 
non-public information relating to the Exchange, obtained as a 
result of BID Holdings' affiliation with NYSE, until such 
information is available generally to similarly situated members of 
NYSE.\9\ Under this rule, BIDS Holdings and its affiliates may have 
access to non-public information relating to the parties' 
obligations under the LLC Agreement, and such non-public information 
must be kept confidential in accordance with Section 14.1 of the LLC 
Agreement.
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    \9\ See NYSE Rule 2B, Commentary .01.
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     Fifth, that if, during at least four of the preceding 
six calendar months, the average daily trading volume in NYBX 
exceeds 10% of the aggregate daily trading volume of NYSE, then, 
within 180 days, either an independent third party self-regulatory 
organization engaged by the Company must begin to conduct 
surveillance of BIDS Trading with respect to BIDS Trading's trading 
activity on both NYBX and NYSE, or BIDS Holdings must reduce its 
interest in the Company such that it does not exceed the 
``Concentration Limitation.'' \10\
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    \10\ See Section 9.9 of the LLC Agreement.
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     Sixth, that NYSE, or any of its affiliates, may not 
directly or indirectly increase its equity interest in BIDS Holdings 
above 10% without prior Commission approval.\11\
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    \11\ See supra note 4.
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     Finally, that the exceptions from NYSE Rule 2B would be 
for a pilot period of 12 months.
    The original 12-month pilot period expired on January 22, 2010 and 
has been extended for four additional 12-month periods to January 22, 
2014.\12\
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    \12\ See Securities Exchange Act Release Nos. 61409 (January 22, 
2010), 75 FR 4889 (January 29, 2010) (SR-NYSE-2010-04); 63545 
(December 14, 2010), 75 FR 80088 (December 21, 2010) (SR-NYSE-2010-
82); 66059 (December 27, 2011), 77 FR 145 (January 3, 2012) (SR-
NYSE-2011-67); and 68658 (January 15, 2013), 78 FR 4524 (January 22, 
2013) (SR-NYSE-2013-01).
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    The Exchange ceased operating NYBX on February 28, 2013 because, 
after years of operations, the facility did not garner enough volume to 
achieve critical mass and did not have strong customer support.\13\ 
Accordingly, on March 1, 2013, BIDS Trading terminated its membership 
with the Exchange and its affiliate, NYSE MKT LLC (``NYSE MKT''). 
Because BIDS Trading is no longer a member organization of the Exchange 
or any of the Exchange's affiliates, the Exchange proposes to delete 
Commentary .01 to NYSE Rule 2B and notes that the conditions and 
limitations described in the Approval Order no longer apply.\14\
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    \13\ See Securities Exchange Act Release No. 68861 (February 7, 
2013), 78 FR 10226 (February 13, 2013) (SR-NYSE-2013-12).
    \14\ The Exchange notes that the conditions and limitations were 
applicable through March 1, 2013, when BIDS Trading ceased to be an 
Exchange member organization. As such, the report to the Exchange's 
Chief Regulatory Officer, enumerated in the third condition, should 
include BIDS Trading activity through to March 1, 2013.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\15\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\16\ in particular, because it 
promotes just and equitable principles of trade, removes impediments to 
and perfects the mechanism of a free and open market and a national 
market system, and, in general, helps to protect investors and the 
public interest. The Exchange believes that the proposal removes 
impediments to and perfects the mechanism of a free and open market by 
reducing potential confusion that may result from having unnecessary 
rule commentary in the Exchange's rulebook. Specifically, because BIDS 
Trading is no longer a member organization of the Exchange or any of 
its affiliates, the relationship between the Exchange and BIDS Holdings 
no longer violates Rule 2B and therefore no longer requires an 
exception to that rule.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 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

[[Page 19342]]

necessary or appropriate in furtherance of the purposes of the Act. The 
proposed change is not designed to address any competitive issue but 
rather would delete unnecessary rule commentary in the Exchange's 
rulebook, thereby reducing confusion and making the Exchange's rules 
easier to understand and navigate.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \17\ and Rule 19b-4(f)(6) thereunder.\18\ 
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 and Rule 19b-
4(f)(6)(iii) thereunder.\19\
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    \17\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 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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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest 
because such waiver would allow the Exchange to delete unnecessary and 
obsolete rule text and therefore make the Exchange's rules easier to 
understand and navigate. Therefore, the Commission designates the 
proposed rule change as operative upon filing.\20\
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    \20\ For the 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 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. 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-NYSE-2013-22 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-NYSE-2013-22. 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 Section, 100 F Street 
NE., Washington, DC 20549. Copies of the filing will also be available 
for Web site viewing and printing at the NYSE's principal office and on 
its Internet Web site at www.nyse.com. 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-NYSE-2013-22 and should be submitted on 
or before April 19, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-07314 Filed 3-28-13; 8:45 am]
BILLING CODE 8011-01-P