Document ID: SEC-2009-1102-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Rule 476A To Add Rule 104(a)(1)(A) to Its "List of Exchange Rule Violations and Fines Applicable Thereto Pursuant to Rule 476A"
Posted Date: 2009-08-05T04:00Z

[Federal Register: August 5, 2009 (Volume 74, Number 149)]
[Notices]               
[Page 39124-39126]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05au09-125]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60399; File No. SR-NYSE-2009-72]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending NYSE Rule 476A To Add Rule 104(a)(1)(A) to Its ``List of 
Exchange Rule Violations and Fines Applicable Thereto Pursuant to Rule 
476A''

July 30, 2009.

    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 July 22, 2009, 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, II, 
and III below, which Items have been substantially prepared by the 
self-regulatory organization. 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 amend NYSE Rule 476A to add Rule 
104(a)(1)(A) to its ``List of Exchange Rule Violations and Fines 
Applicable Thereto Pursuant to Rule 476A.'' \3\ The text of the 
proposed rule change is available at the Exchange, the Commission's 
Public Reference Room, and http://www.nyse.com.
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    \3\ NYSE Amex LLC has submitted a companion rule filing 
proposing corresponding amendments to NYSE Amex Disciplinary Rule 
476A. See SR-NYSE-Amex-2009-47, formally submitted July 22, 2009).
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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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend NYSE Rule 476A to add Rule 
104(a)(1)(A) to its ``List of Exchange Rule Violations and Fines 
Applicable Thereto Pursuant to Rule 476A.''
Current NYSE Rule 104
    Current NYSE Rule 104 requires, inter alia, Designated Market 
Makers (``DMMs'') registered in one or more securities traded on the 
Exchange to engage in a course of dealings for their own account to 
assist in the maintenance of a fair and orderly market, insofar as 
reasonably practicable, by contributing liquidity when lack of price 
continuity and depth, or disparity between supply and demand, exists or 
is reasonably to be anticipated.\4\ This includes an affirmative 
obligation to provide quotes at the National Best Bid or Offer a 
minimum percentage of the trading day (``Affirmative Quote 
Obligation'').
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    \4\ See NYSE Rule 104(f)(ii).
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    The DMMs' Affirmative Quote Obligation is set forth in NYSE Rule 
104(a)(1)(A). Section (a)(1)(A) of Rule 104 requires DMMs to maintain a 
bid or an offer at the National Best Bid and National Best Offer 
(``inside'') at least 10% of the trading day for securities in which 
the DMM unit is registered with an average daily volume on the Exchange 
of less than one million

[[Page 39125]]

shares, and at least 5% for securities in which the DMM unit is 
registered with an average daily volume equal to or greater than one 
million shares. Time at the inside is calculated as the average 
percentage of time the DMM unit has a bid or offer at the inside. In 
calculating whether the DMM is meeting the 10% and 5% requirement, 
credit may be given for executions for the liquidity provided by the 
DMM.\5\ DMM Reserve or other hidden orders are not included in the 
inside quote calculations.
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    \5\ When a DMM sends an s-quote to establish a new best bid or 
best offer, the DMM's s-quote may end up executing immediately 
against dark liquidity inside the spread rather than being quoted. 
Absent rule relief, the s-quote would not be counted toward the DMM 
Unit's quoting requirement, even though the DMM's intent was to add 
liquidity to the market, and even though the s-quote in fact 
resulted in an execution. To address this, the Exchange added a 
provision to NYSE Rule 104 that allows the Exchange to give credit 
to a DMM unit that did not meet its quoting requirement as a result 
of the continuous immediate execution of its s-quotes.
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Proposed Rule Change
    As noted above, the Exchange proposes to add NYSE Rule 104(a)(1)(A) 
to its ``List of Exchange Rule Violations and Fines Applicable Thereto 
Pursuant to Rule 476A.''
    Under the Exchange's Minor Rule Violation Plan, NYSE Rule 476A, the 
Exchange may impose a fine, not to exceed $5,000, on any member, member 
organization, allied member, approved person or registered or non-
registered employee of a member or member organization for a minor 
violation of certain specified Exchange rules. Fines provide a 
meaningful sanction for rule violations when the initiation of a 
disciplinary procedure under Rule 476 is unwarranted given the facts 
and circumstances of the violation, or when the violation calls for a 
stronger response informal discipline than an admonition letter.\6\
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    \6\ The Exchange's Minor Rule Violation Plan, Rule 476A, was 
originally adopted by the Exchange and approved by the Commission in 
1985. See Securities Exchange Act Release No. 34-[sic]21688 (January 
25, 1985), 50 FR 5025-01 (February 5, 1985). It has been amended 
numerous times since its adoption.
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    Currently, when a DMM fails to meet the affirmative quote 
obligations set forth in Rule 104(a)(1)(A), the Exchange's only remedy 
is to bring a formal disciplinary proceeding pursuant to Rule 476. This 
is the case whether or not the DMM has failed to meet its obligations 
once or many times and regardless of whether the DMM made a technical 
error or an intentional one.
    The Exchange believes that the current regulatory approach for 
dealing with DMM quoting obligations is too inflexible. The Exchange 
recognizes that DMMs may, for many reasons, fail to meet their 
affirmative quote obligations as prescribed under Rule 104(a)(1)(A). In 
some circumstances, formal disciplinary measures in accordance with 
Rule 476 are warranted. However, in other instances such a proceeding 
may be unwarranted, and the Exchange is of the view that the addition 
of this Rule to the list of rule violations and fines under Rule 476A 
will provide a more flexible and appropriate tool to enforce potential 
failure by DMMs to adhere to the quoting requirements set forth in Rule 
104(a)(1)(A), while preserving the Exchange's discretion to seek formal 
discipline under the appropriate circumstances.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with, and further the objectives of, Section 6(b)(5) of the Act,\7\ in 
that they are designed to prevent fraudulent and manipulative acts and 
practices, 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. The proposed rule changes also further the objectives 
of Section 6(b)(6), in that they provide for appropriate discipline for 
violations of principles of the Act, the rules and regulations 
thereunder, and Exchange rules and regulations.
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    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule changes will provide 
the Exchange with greater regulatory flexibility to enforce the DMM 
quoting requirements set forth in NYSE Rule 104(a)(1)(A) in a more 
informal manner while also preserving the Exchange's discretion to seek 
formal discipline for more serious transgressions as warranted.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\ 
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.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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-NYSE-2009-72 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-2009-72. 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

[[Page 39126]]

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 inspection and copying 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 will also be available for inspection and copying at the 
principal office of the self-regulatory organization. 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-2009-72 and should be 
submitted on or before August 26, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-18665 Filed 8-4-09; 8:45 am]

BILLING CODE 8010-01-P