Document ID: SEC-2009-1810-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a Proposed Rule Change Relating to the Designation of NYSE Arca, Inc., as the NYSE's Alternative Trading Facility in an Emergency
Posted Date: 2009-12-24T05:00Z

[Federal Register: December 24, 2009 (Volume 74, Number 246)]
[Notices]               
[Page 68434-68435]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24de09-36]                         

[[Page 68434]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61178; File No. SR-NYSEArca-2009-90]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change Relating to the Designation of NYSE Arca, Inc., as 
the NYSE's Alternative Trading Facility in an Emergency

December 16, 2009.

I. Introduction

    On October 13, 2009, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Corporation'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposal to amend NYSE Arca Equities, Inc. Rule (``NYSE Arca Rule'') 
2.100, ``Emergency Powers; Contingency Trading Facility,'' to allow 
NYSE Arca to act, in an emergency, as the alternative trading facility 
for the New York Stock Exchange LLC (``NYSE'') or a national securities 
exchange otherwise designated by NYSE Arca as an affiliated entity (an 
``Affiliated Exchange'').\3\ The proposed rule change was published for 
comment in the Federal Register on November 12, 2009.\4\ The Commission 
received no comments regarding the proposal. This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission today is approving a companion proposal filed 
by the NYSE that allows the NYSE to designate NYSE Arca as its 
alternative trading facility in the event of an emergency condition. 
See Securities Exchange Act Release No. 61177 (order approving File 
No. SR-NYSE-2009-105). Any other Affiliated Exchange that seeks to 
designate NYSE Arca as its alternative trading facility would be 
required to file a proposed rule change with the Commission before 
NYSE Arca could act as that Affiliated Exchange's alternative 
trading facility. Because no other Affiliated Exchange has filed 
such a proposal, the NYSE currently is the only Affiliated Exchange 
that may designate NYSE Arca as its alternative trading facility.
    \4\ See Securities Exchange Act Release No. 60921 (November 3, 
2009), 74 FR 58345 (``Notice'').
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II. Description of the Proposal

    As described in greater detail in the Notice,\5\ NYSE Arca proposes 
to amend NYSE Arca Rule 2.100 to: (1) Delete obsolete rule text; and 
(2) authorize a qualified Corporation officer to declare an emergency 
condition with respect to trading on or through the systems and 
facilities of NYSE Arca.\6\ Under NYSE Arca Rule 2.100, no emergency 
condition will be declared unless: (i) There exists a regional or 
national emergency that would prevent the NYSE Arca from operating 
normally; and (ii) such declaration is necessary so that the securities 
markets in general, and NYSE Arca's systems and facilities, in 
particular, may continue to operate in a manner consistent with the 
protection of investors and in pursuit of the public interest.\7\ For 
purposes of NYSE Arca Rule 2.100, an ``emergency'' is an emergency as 
defined in Section 12(k)(7) of the Act,\8\ and NYSE Arca Rule 2.100 is 
intended to be invoked only in such emergencies.\9\ NYSE Arca 
contemplates that the authority provided in NYSE Arca 2.100 could be 
exercised when, due to an emergency condition, the facilities of NYSE 
Arca's corporate parent, NYSE Euronext, that are located at 11 Wall 
Street are rendered inoperable.\10\ A qualified Corporation officer 
will make reasonable efforts to contact the Commission prior to taking 
action under NYSE Arca Rule 2.100.\11\
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    \5\ See note 4, supra.
    \6\ For purposes of NYSE Arca Rule 2.100, a ``qualified 
Corporation officer'' is the NYSE Euronext Chief Executive Officer 
or his or her designee, or the NYSE Regulation, Inc. Chief Executive 
Officer or his or her designee. If these individuals are unable to 
act due to incapacitation, the most senior surviving officer of NYSE 
Euronext or NYSE Regulation, Inc. will be a ``qualified Corporation 
officer'' for purposes of NYSE Arca Rule 2.100. See NYSE Arca Rule 
2.100(a)(3)(ii).
    \7\ See NYSE Arca Rule 2.100(a)(2).
    \8\ 15 U.S.C. 78l(k)(7). See NYSE Arca Rule 2.100(a)(3)(i).
    \9\ See Notice, supra note 4, at note 5 and accompanying text.
    \10\ Id.
    \11\ See NYSE Arca Rule 2.100(c)(1).
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    In the event that an emergency condition is declared under NYSE 
Arca Rule 2.100(a) with respect to trading on or through the systems 
and facilities of an Affiliated Exchange, a qualified Corporation 
officer may designate NYSE Arca to receive and process bids and offers 
and to execute orders in Affiliated Exchange-listed securities for 
members, member organizations, and sponsored participants of the 
Affiliated Exchange (``Affiliated Participants'') on behalf of such 
Affiliated Exchange.\12\ Quotes or orders of Affiliated Exchange-listed 
securities entered or executed on or through the systems and facilities 
of NYSE Arca would be reported to the Consolidated Quotation System or 
the Consolidated Tape as bids, offers, or executions, respectively, 
made on or through the systems and facilities of the Affiliated 
Exchange.\13\
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    \12\ See NYSE Arca Rule 2.100(a)(3)(iv) and (b)(1). As noted 
above, an Affiliated Exchange would need to file a proposed rule 
change with the Commission before NYSE Arca could serve as the 
alternative trading facility for such Affiliated Exchange. 
Currently, the NYSE is the only exchange that has filed such a 
proposal with the Commission. See note 3, supra.
    \13\ See NYSE Arca Rule 2.100(b)(2)(ii).
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    Affiliated Participants would be permitted to enter quotations and 
to execute orders on or through the systems and facilities of NYSE Arca 
regardless of whether they were ETP Holders or Sponsored Participants 
of NYSE Arca at the time the emergency condition was declared.\14\ 
Affiliated Participants registered as Designated Market Makers 
(``DMMs'') on their Affiliated Exchange would be considered ``Market 
Makers'' pursuant to NYSE Arca Rule 7.23 for the purpose of trading 
Affiliated Exchange-listed securities on and through the systems and 
facilities of NYSE Arca.\15\
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    \14\ See NYSE Arca Rule 2.100(b)(3). NYSE Arca would, as needed, 
designate any Affiliated Participants that are not NYSE Arca ETP 
Holders as temporary members of NYSE Arca and permit Affiliated 
Participants that do not have sponsored access to NYSE Arca to 
obtain temporary access through an existing ETP Holder or an 
Affiliated Participant that is granted temporary membership under 
NYSE Arca Rule 2.100. See NYSE Arca Rule 2.100(b)(3)(i)(A) and (B). 
The temporary memberships or access would be valid only until 
regular trading resumes on or through the Affiliated Exchange's 
systems or facilities. See NYSE Arca Rule 2.100(b)(3)(ii).
    \15\ See NYSE Arca Rule 2.100(b)(3)(i)(C).
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    All trades in Affiliated Exchange-listed securities entered or 
executed on or through the systems and facilities of NYSE Arca would be 
subject to NYSE Arca Rules governing trading, and such rules would be 
considered rules of the Affiliated Exchange for the purposes of such 
transactions, except that: (1) The rules of the Affiliated Exchange 
governing member firm conduct, including membership requirements and 
net capital requirements, would continue to apply to its Affiliated 
Participants; and (2) the Affiliated Exchange's listing requirements 
for all listed securities would continue to apply.\16\
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    \16\ See NYSE Arca Rule 2.100(b)(4).
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    NYSE Arca would conduct surveillance of trading in Affiliated 
Exchange-listed securities on or through the systems and facilities of 
NYSE Arca on behalf of the Affiliated Exchange.\17\ Affiliated 
Participants would remain subject to the jurisdiction of their 
Affiliated Exchange for any disciplinary actions related to the trading 
of Affiliated Exchange-listed securities on or through the facilities 
of NYSE Arca.\18\
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    \17\ See NYSE Arca Rule 2.100(b)(5)(i).
    \18\ See NYSE Arca Rule 2.100(b)(5)(ii).
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    The authority granted pursuant to NYSE Arca Rule 2.100 would remain 
operative for up to 10 calendar days from the date that NYSE Arca 
invokes such authority, and NYSE Arca may terminate actions taken 
pursuant to

[[Page 68435]]

NYSE Arca Rule 2.100 at any time.\19\ NYSE Arca may request an 
extension of this initial 10-day period for a specified amount of time 
by filing a proposed rule change with the Commission pursuant to 
Section 19(b)(2) of the Act, and the Commission must approve the NYSE 
Arca's proposal before any such extension could take effect.\20\
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    \19\ See NYSE Arca Rule 2.100(c)(2) and (3). NYSE Arca will 
provide adequate prior notice to ETP Holders, Sponsored 
Participants, and investors regarding its intention to terminate any 
action taken under the rule. See NYSE Arca Rule 2.100(c)(3).
    \20\ See NYSE Arca Rule 2.100(c)(2).
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    NYSE Arca notes that NYSE Arca, like other self-regulatory 
organizations (``SROs''), currently has the authority to halt trading 
in all stocks eligible for trading on NYSE Arca in the event of 
extraordinary market volatility.\21\ NYSE Arca believes that the NYSE 
currently is the only SRO that monitors for the thresholds (i.e., 
specified declines in the Dow Jones Industrial Average Index\SM\ 
(``DJIA'') from the previous day's close) used in these SRO trading 
halt rules. Accordingly, NYSE Arca proposes to establish a mechanism to 
calculate the DJIA thresholds in the event that trading on the NYSE 
becomes inoperable and NYSE Arca acts as the NYSE's alternative trading 
facility, as contemplated by NYSE Arca Rule 2.100.
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    \21\ See NYSE Arca Rule 7.12.
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III. Discussion and Commission Findings

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\22\ In 
particular, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\23\ which requires, in part, that the rules 
of a national securities exchange be designed to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, 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.
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    \22\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal is reasonably designed to 
permit the NYSE to continue to operate in the event of an emergency, as 
defined in Section 12(k)(7) of the Act, by allowing the NYSE's 
corporate affiliate, NYSE Arca, to receive and process quotations in 
NYSE-listed securities and to execute orders in NYSE-listed securities 
on behalf of the NYSE in the event of an emergency condition.\24\ A 
qualified Corporation officer would invoke the authority provided in 
NYSE Arca Rule 2.100 only in an emergency, as defined in Section 
12(k)(7) of the Act.\25\ NYSE Arca will make reasonable efforts to 
consult with the Commission prior to taking action under NYSE Arca Rule 
2.100.\26\ Any action taken under NYSE Arca Rule 2.100 would be 
operative for up to 10 calendar days from the date that NYSE Arca 
invokes its authority under the rule, and NYSE Arca may terminate 
action taken under the rule at any time.\27\ To extend an action taken 
pursuant to NYSE Arca Rule 2.100 beyond the initial 10-calendar day 
period, NYSE Arca must file a proposed rule change with the Commission 
pursuant to Section 19(b)(2) under the Act, and the Commission would 
need to approve such an extension before it could take effect.\28\ In 
addition, the Commission could, at any time, exercise its authority 
under Section 12(k)(2) of the Act \29\ to terminate an action taken by 
NYSE Arca under NYSE Arca Rule 2.100.
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    \24\ The Commission previously has approved proposals by other 
national securities exchanges to establish back-up trading 
arrangements. See, e.g., Securities Exchange Act Release Nos. 51717 
(May 19, 2005), 70 FR 30160 (May 25, 2005) (File No. SR-CBOE-2004-
59) (approving proposal by the Chicago Board Options Exchange, 
Incorporated to enter into back-up trading arrangements with other 
exchanges); 51926 (June 27, 2005), 70 FR 38232 (July 1, 2005) (File 
No. SR-Phlx-2004-65) (approving proposal by the Philadelphia Stock 
Exchange (``Phlx'') to enter into back-up trading arrangements with 
other exchanges); 40088 (June 12, 1998), 63 FR 33426 (June 18, 1998) 
(File No. SR-Phlx-98-25) (approving the trading of Dell options 
listed on the Phlx at the American Stock Exchange on a temporary 
basis); and 27365 (October 19, 1989), 54 FR 43511 (October 25, 1989) 
(File Nos. SR-Amex-89-26; CBOE-89-21; PSE-89-28; and Phlx-89-52) 
(approving proposals to trade options listed on the Pacific Stock 
Exchange on other exchanges following an earthquake).
    \25\ See NYSE Arca Rule 2.100(a)(2) and (3)(i). See also note 
10, supra, and accompanying text.
    \26\ See NYSE Arca Rule 2.100(c)(1).
    \27\ See NYSE Arca Rule 2.100(c)(2) and (3). NYSE Arca would 
provide adequate prior notice to ETP Holders, Sponsored 
Participants, and investors of its intention to terminate any action 
taken pursuant to NYSE Arca Rule 2.100. See NYSE Arca Rule 
2.100(c)(3).
    \28\ See NYSE Arca Rule 2.100(c)(2).
    \29\ 15 U.S.C. 78l(k)(2).
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    NYSE Arca Rule 2.100 also addresses surveillance and the 
disciplinary procedures that would apply in the event that NYSE Arca 
acts as the NYSE's alternative trading facility, as provided in the 
rule. In particular, NYSE Arca will conduct surveillance of trading in 
NYSE-listed securities on behalf of the NYSE.\30\ NYSE members, member 
organizations, and sponsored participants will remain subject to the 
NYSE's jurisdiction for any disciplinary actions related to the trading 
of NYSE-listed securities on or through the systems and facilities of 
NYSE Arca, and violations of NYSE Arca's rules will be referred to the 
NYSE for prosecution according to the NYSE's disciplinary rules.\31\
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    \30\ See NYSE Arca Rule 2.100(b)(5)(i).
    \31\ See NYSE Arca Rule 2.100(b)(5)(ii).
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    The Commission believes that NYSE Arca's proposal to delete 
obsolete language from NYSE Arca Rule 2.100 is consistent with the Act 
because it is designed to clarify the operation of NYSE Arca Rule 
2.100. Finally, the Commission believes that NYSE Arca's proposal to 
establish a mechanism to calculate the DJIA thresholds in the event 
that trading on the NYSE becomes inoperable is consistent with the Act 
because it designed to help to maintain a fair and orderly market.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\32\ that the proposed rule change (File No. SR-NYSE Arca-2009-90) 
is approved.
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    \32\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
Florence E. Harmon,
Deputy Secretary.
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    \33\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E9-30543 Filed 12-23-09; 8:45 am]

BILLING CODE 8011-01-P