Document ID: SEC-2011-1523-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Amex LLC
Posted Date: 2011-10-06T04:00Z

[Federal Register Volume 76, Number 194 (Thursday, October 6, 2011)]
[Notices]
[Pages 62116-62117]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-25829]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65457; File No. SR-NYSEAmex-2011-63]

Self-Regulatory Organizations; NYSE Amex LLC; Order Approving a 
Proposed Rule Change Amending NYSE Amex Equities Rule 17(c)(2)(B) To 
Make Permanent the Pilot Program That Permits the Exchange To Accept 
Inbound Orders Routed by Archipelago Securities LLC in Its Capacity as 
a Facility of Affiliated Exchanges and To Clarify the NYSE Amex 
Equities Rule 17(c)(2)(A)(ii) to More Accurately Reflect the Regulatory 
Services Agreement Between the Exchange and the Financial Industry 
Regulatory Authority

September 30, 2011.

I. Introduction

    On August 18, 2011, NYSE Amex LLC (``NYSE Amex'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
make permanent the existing pilot program that permits the Exchange to 
accept inbound orders routed by Archipelago Securities LLC (``Arca 
Securities'') in its capacity as a facility of an affiliated exchange 
(with the attendant obligations and conditions), and to clarify the 
text of NYSE Amex Equities Rule 17(c)(2)(B) to more accurately reflect 
the regulatory services agreement (``RSA'') between the Exchange and 
the Financial Industry Regulatory Authority (``FINRA''). The proposed 
rule change was published for comment in the Federal Register on August 
26, 2011.\3\ The Commission received no comment letters regarding the 
proposed rule change. 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\ See Securities Exchange Act Release No. 65184 (August 22, 
2011), 76 FR 53511 (``Notice'').
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II. Background

    Arca Securities is a broker-dealer that is an NYSE Amex member 
organization,\4\ and, among other things, is permitted to provide to 
members of the NYSE and NYSE Arca optional routing services to other 
market centers.\5\ On June 16, 2011, the Exchange filed an immediately 
effective proposed rule change to, among other things, permit the 
Exchange to receive inbound routes of equity orders that Arca 
Securities routes in its capacity as a facility of NYSE and NYSE Arca 
on a pilot basis ending September 30, 2011.\6\ The Exchange now seeks 
permanent approval of this inbound routing pilot.\7\
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    \4\ Arca Securities is owned indirectly by NYSE Euronext (``NYSE 
Euronext''), which also indirectly owns three registered securities 
exchanges--NYSE Arca, Inc. (``NYSE Arca''), the Exchange, and New 
York Stock Exchange LLC (``NYSE''). Thus, Arca Securities is an 
affiliate of each of these exchanges.
    \5\ Arca Securities operates as a facility of NYSE and NYSE Arca 
that provides outbound routing from NYSE and NYSE Arca to other 
market centers, subject to certain conditions. See Securities 
Exchange Act Release Nos. 55590 (April 5, 2007), 72 FR 18707 (April 
13, 2007) (SR-NYSE-2007-29); and 52497 (September 22, 2005), 70 FR 
56949, 56952-56953 (September 29, 2005) (SR-PCX-2005-90).
    \6\ See Securities Exchange Act Release No. 64728 (June 23, 
2011), 76 FR 38223 (June 29, 2011) (SR-NYSEAmex-2011-39) (``Routing 
Pilot Release''). See also Notice, 76 FR at 53511, n.5 and 
accompanying text.
    \7\ See Notice.
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III. Discussion and Commission Findings

    After careful review, 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.\8\ 
Specifically, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(1) of the Act,\9\ which requires, among 
other things, that a national

[[Page 62117]]

securities exchange be so organized and have the capacity to carry out 
the purposes of the Act, and to comply and enforce compliance by its 
members and persons associated with its members, with the provisions of 
the Act, the rules and regulation thereunder, and the rules of the 
Exchange. Further, the Commission finds that the proposed rule change 
is consistent with Section 6(b)(5) of the Act,\10\ which requires, 
among other things, that the rules of a national securities exchange be 
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 regulating, clearing, 
settling, and processing information with respect to, and 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. Section 
6(b)(5) also requires that the rules of an exchange not be designed to 
permit unfair discrimination among customers, issuers, brokers, or 
dealers.
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    \8\ 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).
    \9\ 15 U.S.C. 78f(b)(1).
    \10\ 15 U.S.C. 78f(b)(5).
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    Recognizing that the Commission has expressed concern 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 
previously implemented limitations and conditions to Arca Securities's 
affiliation with the Exchange to permit the Exchange to accept orders 
routed inbound to NYSE Amex by Arca Securities from its affiliates, 
NYSE and NYSE Arca, on a pilot basis.\11\ The Exchange now seeks to 
make this pilot permanent, and to more accurately reflect in its rule 
text its RSA with FINRA. Specifically, the Exchange states it is in 
compliance with the following obligations and conditions: \12\
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    \11\ See Routing Pilot Release. See also supra note 6 and 
accompanying text.
    \12\ See Notice, 76 FR at 53512.
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     First, the Exchange will maintain an agreement pursuant to 
Rule 17d-2 under the Exchange Act with FINRA to relieve the Exchange of 
regulatory responsibilities for Arca Securities with respect to rules 
that are common rules between the Exchange and FINRA, and maintain an 
RSA with FINRA to perform regulatory responsibilities for Arca 
Securities for unique Exchange rules.
     Second, the RSA will require the Exchange to provide FINRA 
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 Commission Rules and of which the 
Exchange becomes aware, and shall require that FINRA 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 Commission Rules; \13\
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    \13\ See Notice, 76 FR at 53512, n.8 and accompanying text. The 
Exchange proposed to modify this provision, as set forth in NYSE 
Amex Equities Rule 17(c)(2)(A)(ii) to more accurately reflect its 
RSA with FINRA and specify that the quarterly report of Exceptions 
shall be provided to the Exchange's Chief Regulatory Officer 
(``CRO''). The Exchange states that upon approval of this change, it 
will continue to comply with the obligations and conditions as set 
forth in NYSE Amex Equities Rule 17(c)(2). See Notice, 76 FR at 
53512.
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     Third, the Exchange, on behalf of its parent, NYSE 
Euronext, 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 member 
organizations of the Exchange in connection with the provision of 
inbound order routing to the Exchange; and
     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 member organization.\14\

    \14\ See NYSE Amex Equities Rule 17(c)(2). See also Notice, 76 
FR at 53512.

The Exchange believes that by meeting the above-listed conditions it 
has set up mechanisms that protect the independence of the Exchange's 
regulatory responsibility with respect to Arca Securities, and has 
demonstrated that Arca Securities cannot use any information it may 
have because of its affiliation with the Exchange to its advantage.\15\
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    \15\ See Notice, 76 FR at 53512.
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    In the past, the Commission has expressed concern that the 
affiliation of an exchange with one of its members raises potential 
conflicts of interest, and the potential for unfair competitive 
advantage.\16\ Although the Commission continues to be concerned about 
potential unfair competition and conflicts of interest between an 
exchange's self-regulatory obligations and its commercial interest when 
the exchange is affiliated with one of its members, for the reasons 
discussed below, the Commission believes that it is consistent with the 
Act to permit Arca Securities to provide inbound routing to the 
Exchange on a permanent basis instead of a pilot basis, subject to the 
other conditions described above.
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    \16\ See, e.g., Securities Exchange Act Release Nos. 54170 (July 
18, 2006), 71 FR 42149 (July 25, 2006) (SR-NASDAQ-2006-006) (order 
approving Nasdaq's proposal to adopt Nasdaq Rule 2140, restricting 
affiliations between Nasdaq and its members); 53382 (February 27, 
2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) (order 
approving the combination of the New York Stock Exchange, Inc. and 
Archipelago Holdings, Inc.); 58673 (September 29, 2008), 73 FR 57707 
(October 8, 2008) (SR-Amex-2008-62) (order approving the combination 
of NYSE Euronext and the American Stock Exchange LLC); 59135 
(December 22, 2008), 73 FR 79954 (December 30, 2008) (SR-ISE-2009-
85) (order approving the purchase by ISE Holdings of an ownership 
interest in DirectEdge Holdings LLC); and 59281 (January 22, 2009), 
74 FR 5014 (January 28, 2009) (SR-NYSE-2008-120) (order approving a 
joint venture between NYSE and BIDS Holdings L.P.).
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    The Exchange has proposed four ongoing conditions applicable to 
Arca Securities's routing activities, which are enumerated above. The 
Commission believes that these conditions mitigate its concerns about 
potential conflicts of interest and unfair competitive advantage. In 
particular, the Commission believes that FINRA's oversight of Arca 
Securities,\17\ combined with FINRA's monitoring of Arca Securities's 
compliance with the Exchange's rules and quarterly reporting to NYSE 
Amex's CRO, will help to protect the independence of the Exchange's 
regulatory responsibilities with respect to Arca Securities.
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    \17\ This oversight will be accomplished through the Regulatory 
Contract between the Exchange and FINRA and a 17d-2 Agreement.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-NYSEAmex-2011-63) be, and 
hereby is, approved.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-25829 Filed 10-5-11; 8:45 am]
BILLING CODE 8011-01-P