Document ID: SEC-2013-1413-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2013-08-08T04:00Z

[Federal Register Volume 78, Number 153 (Thursday, August 8, 2013)]
[Notices]
[Pages 48513-48516]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-19145]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70098; File No. SR-NYSEMKT-2013-66]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change To Adopt the Text of New York Stock Exchange Rule 
49 as Rule 49--Equities in Order To Authorize Exchange Officials To 
Exercise the Same Emergency Powers As NYSE Officials May Exercise

August 2, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on July 22, 2013, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been 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\ 15 U.S.C. 78a.
    \3\ 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 [adopt] the text of New York Stock 
Exchange (``NYSE'') Rule 49 as Rule 49--Equities in order to authorize 
Exchange officials to exercise the same emergency powers as NYSE 
officials may exercise. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt the text of proposed NYSE Rule 49 as 
Rule 49--Equities in order to authorize Exchange officials to exercise 
the same emergency powers as NYSE officials may exercise.\4\
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    \4\ See SR-NYSE-2013-54.
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Background
    In 2009, NYSE adopted NYSE Rule 49 to provide NYSE officials with 
the authority to declare an emergency condition \5\ with respect to 
trading on or through NYSE's systems and facilities and to act as 
necessary in the public interest and for the protection of 
investors.\6\ The authority in NYSE Rule 49 may be exercised when, due 
to an emergency condition, NYSE's systems and facilities located at 11 
Wall Street, New York, New York, including the NYSE Trading Floor, 
cannot be utilized. If such an emergency condition is declared, a 
qualified NYSE officer may, among other things, designate NYSE Arca LLC 
(``NYSE Arca''), NYSE's and the Exchange's affiliate, to serve as a 
backup facility to receive and process bids and offers and to execute 
orders on behalf of NYSE so that NYSE, as a self-regulatory 
organization (``SRO''), can remain operational.\7\ NYSE Arca, which 
would continue to operate simultaneously during the emergency 
condition, has a counterpart rule, NYSE Arca Equities Rule 2.100. To 
date, NYSE has not invoked NYSE Rule 49. The Exchange currently has no 
counterpart rule.
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    \5\ The definition of ``emergency'' is the one used in Section 
12(k)(7) of the Act and is also used by other exchanges and the 
Securities and Exchange Commission (``Commission''). Section 
12(k)(7) defines an emergency to mean ``(A) a major market 
disturbance characterized by or constituting--(i) sudden and 
excessive fluctuations of securities prices generally, or a 
substantial threat thereof, that threaten fair and orderly markets; 
or (ii) a substantial disruption of the safe or efficient operation 
of the national system for clearance and settlement of transactions 
in securities, or a substantial threat thereof; or (B) a major 
disturbance that substantially disrupts, or threatens to 
substantially disrupt--(i) the functioning of securities markets, 
investment companies, or any other significant portion or segment of 
the securities markets; or (ii) the transmission or processing of 
securities transactions.'' 15 U.S.C. 78l(k)(7).
    \6\ See Securities Exchange Act Release No. 61177 (December 16, 
2009), 74 FR 68643 (December 28, 2009) (SR-NYSE-2009-105).
    \7\ NYSE Arca trades equity securities on the systems and 
facilities of its wholly owned subsidiary, NYSE Arca Equities, Inc., 
referred to as the ``NYSE Arca Marketplace.'' For the purposes of 
this filing and in the text of proposed Rule 49--Equities, these 
shall be referred to collectively as the systems and facilities of 
NYSE Arca, or simply NYSE Arca.
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    On October 29 and 30, 2012, due to the dangerous conditions that 
developed as a result of Superstorm Sandy, NYSE and the Exchange, as 
well as a number of their member organizations located in the tri-state 
area, were unable to open because of the risk of flooding at their 
physical locations. In addition, other broker-dealers and exchanges 
with facilities in the area were also faced with significant staffing 
challenges because the storm conditions prevented personnel from 
getting to work. As a result, it was agreed, after consulting with 
other exchanges, market participants, and Commission staff, and in 
light of concerns over the physical safety of personnel and the 
possibility of technical issues, that all U.S. equities and options 
markets would be closed for those two days.
    NYSE has proposed to amend NYSE Rule 49 to more effectively 
delineate the SRO functions of the Exchange and NYSE Arca during an 
emergency condition, reflect the operational preferences of the 
industry, and reflect the current structure of member organization 
connectivity to and system coding for exchange systems.\8\ The current 
NYSE rule contemplates the Exchange remaining operational during the 
emergency condition and both NYSE and NYSE Arca performing certain SRO 
functions with respect to the same trading activity that would be 
taking place on NYSE Arca. NYSE believes that a more practical and 
effective structure would be to have all trading activity occurring on 
NYSE Arca under that SRO's authority, with one exception. NYSE Arca 
would, on behalf and at the direction of NYSE, disseminate certain 
primary listing market messages as both NYSE and NYSE Arca messages so 
that market participants' systems could properly recognize such 
messages. NYSE Arca would do so beginning on the next trading day 
following the declaration of the emergency condition. All trading 
volume on NYSE Arca in NYSE-listed securities during the emergency 
condition would be reported as NYSE

[[Page 48514]]

Arca volume, except for volume associated with the opening and closing 
prints in NYSE-listed securities, which would be deemed NYSE volume. 
NYSE Arca has submitted a related rule filing.\9\
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    \8\ See supra [note 4].
    \9\ See SR-NYSEArca-2013-77.
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Proposed Rule Change
    To align its authority with its affiliates and mitigate the 
possibility of having to close in the event of a future emergency 
condition, the Exchange proposes to adopt the text of proposed NYSE 
Rule 49. The proposed rule change would provide NYSE MKT officials with 
the same emergency powers that NYSE officials may exercise. Each of the 
provisions of the proposed rule change is described below.
    Under proposed Rule 49(a)(1)--Equities, in the event of an 
emergency, a qualified Exchange officer would have the authority to 
declare an emergency condition with respect to trading on or through 
the systems and facilities of the Exchange (``Emergency Condition'') 
and designate NYSE Arca to perform the functions set forth in proposed 
Rule 49(b)(2)(A)--Equities on behalf of and at the direction of the 
Exchange.
    Under proposed Rule 49(a)(2)--Equities, no declaration of an 
Emergency Condition could be made pursuant to Rule 49(a)(1)--Equities 
unless (A) a regional or national emergency existed that would prevent 
the Exchange from operating normally, and (B) such declaration was 
necessary so that the securities markets, in general, could continue to 
operate and trading in Exchange-listed securities, in particular, could 
continue to occur in a manner consistent with the protection of 
investors and in pursuit of the public interest.
    Under proposed Rule 49(a)(3)--Equities, the term ``emergency'' as 
used in the rule would mean an ``emergency'' as defined in Section 
12(k)(7) of the Act.\10\ The term ``qualified Exchange officer'' would 
mean 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 none of these individuals were able to act due to 
incapacitation, the most senior surviving officer of NYSE Euronext or 
NYSE Regulation, Inc. would be a ``qualified Exchange officer'' for 
purposes of the rule.
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    \10\ See supra [note 5].
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    Under proposed Rule 49(b)(1)--Equities, when an Emergency Condition 
is declared under paragraph (a), the Exchange: (A) Would halt all 
trading conducted on the Exchange's systems and facilities and would 
not route any unexecuted orders to NYSE Arca; (B) would accept 
cancellations for Good `Til Cancelled (``GTC'') orders; and (C) would 
purge any unexecuted orders from the Exchange's own systems and 
facilities as soon as practicable following declaration of the 
Emergency Condition.
    Under proposed Rule 49(b)(2)--Equities, beginning on the next 
trading day following the declaration of the Emergency Condition,\11\ 
NYSE Arca would, on behalf of and at the direction of the Exchange, 
disseminate as messages of both the Exchange and NYSE Arca (A) the 
official opening and closing prices of Exchange-listed securities to 
the Consolidated Tape Association (``CTA''), and (B) notifications to 
the Consolidated Quotation System (``CQS'') for Exchange-listed 
securities of (i) regulatory halts and resumption of trading 
thereafter, (ii) trading pause and resumption of trading thereafter, 
and (iii) Short Sale Price Test trigger and lifting thereafter 
(collectively, ``primary listing market notifications'').\12\ The 
Exchange notes that in the event of an intra-day declaration of an 
Emergency Condition, the Exchange would manually disseminate primary 
listing market notifications to CQS. Quotes or orders of Exchange-
listed securities entered on or through the systems and facilities of 
NYSE Arca during the Emergency Condition would be reported to CQS as 
bids or offers of NYSE Arca, and quotes or orders of Exchange-listed 
securities executed on or through the systems and facilities of NYSE 
Arca during the Emergency Condition would be reported to CTA as 
executions of NYSE Arca, except that executions in the opening or 
closing auctions would be reported as Exchange volume only in order to 
avoid any double counting.
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    \11\ The Exchange's current and proposed disaster recovery plans 
do not enable the intraday failover of the Exchange's system onto 
NYSE Arca, including dissemination of primary listing market 
notifications; such technology is only available on a next-day 
basis.
    \12\ See NYSE MKT Rules 123D--Equities, 80B--Equities, 80C--
Equities, and 440B--Equities. Each of these types of notifications 
is a responsibility of the primary listing market for the security.
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    The Exchange believes that the proposed rule would minimize the 
impact of declaring an Emergency Condition because NYSE Arca already 
trades Exchange-listed securities on an unlisted trading privileges 
basis and prints such executions as NYSE Arca, or ``P,'' trades.\13\ 
This arrangement would be compatible with market participants' system 
coding conventions, where orders routed to an exchange generally come 
back as executions from that exchange, unless routed out. Thus, quotes 
and orders in Exchange-listed securities routed to NYSE Arca during the 
Emergency Condition would come back to the entering firm as ``P'' 
executions, rather than ``A'' executions.\14\ Similarly, the Exchange 
further understands that in order for many market participants' systems 
to recognize the primary listing market notifications, the 
notifications must carry an ``A'' designation to associate it with 
Exchange-listed securities. If the notifications were disseminated only 
as ``P'' notifications, they may not be properly recognized by these 
market participants' systems. However, other market participants may be 
able to read such primary listing market notifications if disseminated 
with the ``P'' designation. Accordingly, during an Emergency Condition, 
in order to accommodate various market participants' existing 
technological frameworks for the temporary measures addressed in 
proposed Rule 49--Equities, NYSE Arca would disseminate the official 
opening and closing prints for Exchange-listed securities and primary 
listing market notifications with both ``P'' and ``A'' designations. 
When NYSE Arca disseminates these messages on behalf of the Exchange, 
it will do so in accordance with its own rules and procedures for its 
primary listed securities.\15\ The Exchange believes that the proposed 
rule change offers a practical solution that will be compatible with 
most market participants' current system coding, which will allow the 
proposed rule change to be quickly and efficiently implemented and 
avoid the costs and delays associated with system reprogramming.
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    \13\ The ``P'' designation reflects one of NYSE Arca's 
predecessor names, Pacific Exchange, Inc., before it was purchased 
by NYSE Euronext.
    \14\ The ``A'' designation reflects one of the Exchange's 
predecessor names, American Stock Exchange LLC, before it was 
purchased by NYSE Euronext.
    \15\ Nonetheless, the Exchange will remain the SRO that is 
legally responsible for the notifications.
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    The Exchange believes that maintaining a primary market print for 
an Exchange-listed security's official opening price would assist 
market participants that rely on a primary market opening print as the 
basis for trading strategies for that trading day. For example, the 
pricing and valuation of certain indices, funds and derivative products 
require primary market prints. Similarly, private corporate 
transactional contracts involving stock purchases or valuations 
frequently make reference to the primary market print rather than to 
the CTA print. In addition, certain indexes rely on the primary listing 
market closing print to

[[Page 48515]]

calculate the index, and certain funds rely on the primary listing 
market closing print to calculate the fund's value. Thus, these market 
participants would benefit from the dissemination of the primary market 
prints as ``A'' messages and not have to engage in any system 
reprogramming to receive them.
    Under proposed Rule 49(b)(3)--Equities, members and member 
organizations wishing to trade Exchange-listed securities during an 
Emergency Condition would be responsible for having contingency plans 
for establishing connectivity to NYSE Arca and changing the routing 
instructions for their order entry systems to send quotes and orders in 
Exchange-listed securities to NYSE Arca. Under proposed Rule 49(b)(4)--
Equities, during an Emergency Condition, all trading of Exchange-listed 
securities entered or executed on or through the systems and facilities 
of NYSE Arca would be subject to NYSE Arca Equities rules (including 
but not limited to the opening, re-opening, and closing auction 
processes applicable to securities for which NYSE Arca is the primary 
listing market set forth in NYSE Arca Equities Rule 7.35), except that 
the Exchange's listing requirements for its listed securities would 
continue to apply.
    Under proposed Rule 49(c)(1)--Equities, in connection with taking 
action under the rule, a qualified Exchange officer would make 
reasonable efforts to consult with the Commission before taking such 
action, or, if the qualified Exchange officer were unable to consult 
prior to acting, as promptly thereafter as practicable under the 
circumstances. The authority granted pursuant to the rule would be 
operative for up to 10 calendar days from the date that the Exchange 
invoked such authority. The Exchange could request that the initial 10-
calendar-day period be extended for a specific amount of time by 
submission of a rule filing pursuant to Section 19(b)(2) of the Act. 
Such extension would not take effect except upon approval of such a 
filing by the Commission. Actions taken pursuant to the rule could be 
terminated by the Exchange at any time. The Exchange would provide 
adequate prior notice to members, member organizations, Sponsored 
Participants and investors regarding its intention to terminate any 
such action.
    The Exchange will announce by Trader Update when the Exchange and 
NYSE Arca will be ready to implement the proposed rule change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\16\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\17\ in particular, because it 
is designed to promote just and equitable principles of trade and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. In addition, the Exchange believes 
that the proposed rule change furthers the objectives of Section 
6(b)(7) of the Act,\18\ in particular, in that it provides fair 
procedures for the disciplining of members \19\ and persons associated 
with members, the denial of membership to any person seeking membership 
therein, the barring of any person from becoming associated with a 
member thereof, and the prohibition or limitation by the Exchange of 
any person with respect to access to services offered by the Exchange 
or a member thereof.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78f(b)(7).
    \19\ The Exchange's equivalent to the term ``member'' in this 
context is ``member organization.''
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    Specifically, the Exchange believes that the proposed rule change 
would promote just and equitable principles of trade and remove 
impediments to and perfect the mechanism of a free and open market and 
national market system because it offers a practical solution to 
facilitate trading in Exchange-listed securities in the event of an 
Emergency Condition and would help to avoid a future market-wide 
closure. All quoting and trading activity in NYSE MKT-listed securities 
during the Emergency Condition would be deemed NYSE Arca quoting and 
trading for purposes of CQS and CTA reporting and be subject to NYSE 
Arca's surveillance and discipline, except that the opening and closing 
prints and primary listing market notifications would be disseminated 
as both Exchange and NYSE Arca messages so that the majority of market 
participants' systems could properly receive and process them. As such, 
the proposed rule change reflects the operational preferences of the 
industry and the current structure of most member organizations' 
connectivity to and system coding for exchange systems and would reduce 
the systemic and administrative burdens on market participants by 
avoiding the need for reprogramming, depending on which message 
notifications their respective systems would be able to read during 
such an Emergency Condition. The Exchange believes that facilitating 
trading on NYSE Arca in Exchange-listed securities under that SRO's 
rules would benefit both issuers and investors by providing additional 
liquidity during the Emergency Condition.
    The Exchange also believes that the proposed rule change would 
remove impediments to and perfect the mechanism of a free and open 
market and national market system because it would assist market 
participants that rely on or reference a primary market opening print 
in their trading strategies or private corporate transactional 
contracts involving stock purchases or valuations. In addition, certain 
indexes rely on the primary listing market closing print to calculate 
the index and certain funds rely on the primary listing market closing 
print to calculate the fund's value. The proposed rule change would 
assist these market participants in performing these functions without 
requiring them to reprogram their systems.
    The Exchange also believes that the proposed rule change would 
promote just and equitable principles of trade and provide for fair 
discipline by clearly delineating SRO surveillance and disciplinary 
functions. The Exchange believes that it would be more effective for 
NYSE Arca to discipline NYSE MKT members and member organizations under 
NYSE Arca rules rather than having the Exchange enforce NYSE Arca 
rules, as the NYSE would do under its current rule.
    In sum, the Exchange believes that the proposed rule change would 
substantially strengthen business continuity planning for itself and 
its member organizations, thereby benefiting market participants and 
investors generally.

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. The proposed rule change is 
designed to facilitate trading in Exchange-listed securities on NYSE 
Arca during an Emergency Condition. As such, the Exchange believes that 
the proposed rule change would promote competition for the benefit of 
market participants and investors generally.

[[Page 48516]]

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-NYSEMKT-2013-66 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- NYSEMKT-2013-66. 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 Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing will also 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 publicly available. All 
submissions should refer to File Number SR- NYSEMKT-2013-66 and should 
be submitted on or before August 29, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-19145 Filed 8-7-13; 8:45 am]
BILLING CODE 8011-01-P