Document ID: SEC-2011-0902-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE AmexLLC
Posted Date: 2011-06-29T04:00Z

[Federal Register Volume 76, Number 125 (Wednesday, June 29, 2011)]
[Notices]
[Pages 38223-38225]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16223]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64728; File No. SR-NYSEAmex-2011-39]

Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Rule 17--
NYSE Amex Equities To Codify Inbound Routing Functions Performed by Its 
Affiliate Broker-Dealer, Archipelago Securities LLC

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 to amend Rule 17--NYSE Amex Equities to 
codify inbound routing functions performed by its affiliate broker-
dealer, Archipelago Securities LLC (``Arca Securities''). 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 amend Rule 17--NYSE Amex Equities to 
codify inbound routing functions performed by its affiliate broker-
dealer, Arca Securities, which have previously been approved by the 
Commission.\3\
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    \3\ The Exchange's affiliates, New York Stock Exchange, LLC 
(``NYSE'') and NYSE Arca, Inc. (``NYSE Arca''), are proposing 
substantially similar rule changes. See SR-NYSE-2011-24 and SR-
NYSEArca-2011-38.
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Background--Arca Securities Functions as Routing Broker
    Arca Securities currently is the primary outbound and inbound 
routing broker for NYSE Amex. The outbound routing function for NYSE 
Amex is governed by Rules 13 and 17--NYSE Amex Equities.\4\ These rules 
permit NYSE Amex to utilize Arca Securities to route orders to an away 
market center for execution whenever such routing is required by 
Exchange Rules and Federal securities laws.\5\
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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 currently 
refers generically to ``Routing Broker(s),'' rather than just Arca 
Securities.
    \5\ See Securities Exchange Act Release No. 59009 (November 24, 
2008), 73 FR 73363 (December 2, 2008) (SR-NYSEALTR-2008-07).
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    The inbound routing function of Arca Securities currently is 
governed by a pilot program established to permit Arca Securities to 
route orders from NYSE and NYSE Arca to NYSE Amex.\6\ The pilot was 
extended and is currently scheduled to expire on September 30, 2011.\7\ 
The terms of the inbound routing pilot are generally set forth in the 
Commission's approval orders, rather than rule text (except as noted 
below).\8\ The terms of the pilots are as follows:
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    \6\ See Securities Exchange Act Release No. 58673 (September 29, 
2008), 73 FR 57707, 57716 (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).
    \7\ See Securities Exchange Act Release Nos. 60751 (September 
30, 2009), 74 FR 51630 (October 7, 2009) (SR-NYSEAmex-2009-67) 
(extending pilot from September 29, 2009 to December 31, 2009); 
61269 (December 31, 2009), 75 FR 1097 (January 8, 2010) (SR-
NYSEAmex-2009-91) (extending pilot from December 31, 2009 to March 
31, 2010); 61815 (March 31, 2010), 75 FR 17813 (April 7, 2010) (SR-
NYSEAmex-2010-32) (extending pilot from March 31, 2010 to September 
30, 2010); 62831 (September 2, 2010), 75 FR 55388 (September 10, 
2010) (SR-NYSEAmex-2010-91) (extending pilot from September 30, 2010 
to March 31, 2011); and 64014 (March 2, 2011), 76 FR 12733 (March 8, 
2011) (SR-NYSEAmex-2011-10) (extending pilot from March 31, 2011 to 
September 30, 2011).
    \8\ See supra note 4.
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    The Exchange and the Financial Industry Regulatory Authority 
(``FINRA'') have entered into a Rule 17d-2 agreement pursuant to which 
FINRA is allocated regulatory responsibilities to review Arca 
Securities' compliance with certain Exchange rules. The Exchange, 
however, retains ultimate responsibility for enforcing its rules with 
respect to Arca Securities.
    NYSE Regulation monitors Arca Securities for compliance with the 
Exchange's trading rules and collects and maintains certain related 
information. Specifically, NYSE Regulation collects and maintains the 
following information of which NYSE Regulation staff becomes aware--
namely, all alerts, complaints, investigations and enforcement actions 
where Arca Securities is identified as a participant that has 
potentially violated Exchange 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.
    NYSE Regulation has agreed with the Exchange that it will provide a 
report to the Exchange's Chief Regulatory Officer, on a quarterly 
basis, that (i) Quantifies all alerts (of which NYSE Regulation is 
aware) that identify Arca Securities as a participant that has 
potentially violated Exchange or SEC rules, and (ii) quantifies the 
number of all investigations that identify Arca Securities as a 
participant that has potentially violated Exchange or Commission rules.
    NYSE Euronext, as parent of the Exchange, was obligated to adopt a 
rule requiring it to establish and maintain procedures and internal 
controls reasonably designed to ensure that Arca Securities does not 
develop or implement changes to its system, based on non-public 
information obtained regarding planned changes to the Exchange's 
systems as a result of its affiliation with the Exchange, until such 
information is available generally to similarly situated members of the 
Exchange.\9\
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    \9\ See supra note 4. See also Rule 2B--NYSE Amex Equities.
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    Since the initiation of the inbound routing pilot in 2008, the 
Exchange in 2010 entered into a comprehensive

[[Page 38224]]

Regulatory Services Agreement (``RSA'') with FINRA that, among other 
things, allocated to FINRA responsibility for the functions noted above 
that NYSE Regulation previously performed with respect to Arca 
Securities (e.g., monitoring Arca Securities' compliance with the 
Exchange's trading rules).\10\ As a result of this RSA and the Rule 
17d-2 agreement, the only regulatory functions related to Arca 
Securities that remain with NYSE Regulation are the provision to FINRA 
of the exceptions noted above of which NYSE Regulation becomes aware 
(e.g., alerts involving Arca Securities) and the receipt of the 
quarterly report noted above, which is now produced by FINRA.
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    \10\ The Exchange notes that FINRA reviews both inbound and 
outbound routing via Arca Securities pursuant to the 17d-2 agreement 
and the RSA. The Exchange will review the terms of the RSA in 
connection with this proposed rule change, and will amend it to 
reflect the specific terms of this filing.
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    Arca Securities was also previously engaged in certain odd-lot and 
sub-penny transactions as part of its routing function for the 
Exchange.\11\ These functions were implemented on a permanent basis as 
part of the same proposed rule change implementing the outbound routing 
functions.\12\ As a result of subsequent rule changes, however, Arca 
Securities no longer performs these functions.\13\
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    \11\ See supra note 3. No rule text was added to the NYSE Amex 
Rules to describe these functions.
    \12\ See id.
    \13\ NYSE Amex has modified its electronic trading system in 
order to accommodate away market center executions in odd-lots and 
sub-pennies. See Securities Exchange Act Release No. 62578 (July 27, 
2010), 75 FR 45185 (August 2, 2010) (SR-NYSEAmex-2010-53) (amending 
various NYSE rules to incorporate the receipt and execution of odd-
lot interest into the round lot market and decommission the use of 
Odd-lot System); Securities Exchange Act Release No. 60916 (November 
3, 2009), 74 FR 57722 (November 9, 2009) (SR-NYSEAmex-2009-78) 
(deleting rule text from the Supplementary Material to Rule 62--NYSE 
Amex Equities because Exchange technology was modified to quote and 
execute bids/offers priced below $1.00 per share in sub-penny 
increments of $0.0001).
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Proposed Rule Change
    In order to provide more clarity and transparency to all of the 
functions that Arca Securities performs on behalf of the Exchange, NYSE 
Amex proposes to add text to Rule 17--NYSE Amex Equities to describe 
the inbound routing functions. By doing so, the Exchange would 
establish a single, central location in its Rules describing all 
routing broker functions, including both inbound and outbound routing.
    Specifically, the existing text of Rule 17--NYSE Amex Equities 
concerning Routing Brokers' outbound routing function, including with 
respect to Arca Securities, would be redesignated as new Rule 
17(c)(1)--NYSE Amex Equities. The Exchange proposes to add new Rule 
17(c)(2)--NYSE Amex Equities to add text describing Arca Securities' 
inbound routing functions. The rule text in paragraph (c)(2) would be 
substantially the same as the language set forth in the Commission 
notices applicable to the Exchange and virtually identical to the 
inbound router rule text already implemented for another exchange.\14\ 
In this regard, the rule text would track the terms of the inbound 
routing pilot noted above (and as set forth in the rule filings), with 
the following exceptions. First, the rule text would reflect that 
certain regulatory functions are now carried out by FINRA on behalf of 
NYSE Regulation, rather than by NYSE Regulation directly. Second, the 
rule text would require procedures and controls that are 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.\15\ In comparison, the current language from the inbound 
routing pilot requires procedures and controls that are reasonably 
designed to ensure that Arca Securities does not develop or implement 
changes to its system, based on non-public information obtained 
regarding planned changes to the Exchange's systems as a result of its 
affiliation with the Exchange, until such information is available 
generally to similarly situated members of the Exchange.
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    \14\ 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).
    \15\ The Exchange notes that the text proposed in Rule 
17(c)(2)(B)--NYSE Amex Equities would make clear that 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.
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    Additionally, the Exchange proposes certain technical changes to 
Rule 17(c)--NYSE Amex Equities, which governs Arca Securities' outbound 
routing functions, to align it with the changes proposed herein. The 
Exchange also proposes to include specific rule text to codify the 
current date upon which the inbound routing pilots are set to expire--
September 30, 2011.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)\16\ of the 
Act, in general, and furthers the objectives of Section 6(b)(5),\17\ 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 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 
members. The Exchange also believes that the proposed rule change would 
support the principles of Section 11A(a)(1) of the Act \18\ in that it 
seeks to assure economically efficient execution of securities 
transactions.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78k-1(a)(1).
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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 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

[[Page 38225]]

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 
\19\ and Rule 19b-4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 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.\21\ 
However, Rule 19b-4(f)(6)(iii) \22\ 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 reason, 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.\23\
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    \21\ 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.
    \22\ Id.
    \23\ 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-2011-39 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-2011-39. 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-
NYSEAmex-2011-39 and should be submitted on or before July 20, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16223 Filed 6-28-11; 8:45 am]
BILLING CODE 8011-01-P