Document ID: SEC-2015-0001-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2015-01-02T05:00Z

[Federal Register Volume 80, Number 1 (Friday, January 2, 2015)]
[Notices]
[Pages 60-63]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30705]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73946; File No. SR-NYSEMKT-2014-109]

Self-Regulatory Organizations; NYSE MKT, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Extending the 
Operation of Its New Market Model Pilot, Until the Earlier of 
Securities and Exchange Commission Approval To Make Such Pilot 
Permanent or July 31, 2015

December 24, 2014.
    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 December 18, 2014, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') 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 the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend the operation of its New Market 
Model Pilot, currently scheduled to expire on December 31, 2014, until 
the earlier of Securities and Exchange Commission (``Commission'') 
approval to make such pilot permanent or July 31, 2015. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to extend the operation of its New Market 
Model Pilot (``NMM Pilot'') that was adopted pursuant to its merger 
with the New York Stock Exchange LLC (``NYSE'').\4\

[[Page 61]]

The NMM Pilot was approved to operate until October 1, 2009. The 
Exchange filed to extend the operation of the Pilot to November 30, 
2009, March 30, 2010, September 30, 2010, January 31, 2011, August 1, 
2011, January 31, 2012, July 31, 2012, January 31, 2013, July 31, 2013, 
January 31, 2014, July 31, 2014, and December 31, 2014 respectively.\5\ 
The Exchange now seeks to extend the operation of the NMM Pilot, 
currently scheduled to expire on December 31, 2014, until the earlier 
of Commission approval to make such pilot permanent or July 31, 2015.
---------------------------------------------------------------------------

    \4\ NYSE Euronext acquired The Amex Membership Corporation 
(``AMC'') pursuant to an Agreement and Plan of Merger, dated January 
17, 2008 (the ``Merger''). In connection with the Merger, the 
Exchange's predecessor, the American Stock Exchange LLC (``Amex''), 
a subsidiary of AMC, became a subsidiary of NYSE Euronext called 
NYSE Alternext US LLC. See Securities Exchange Act Release No. 58673 
(September 29, 2008), 73 FR 57707 (October 3, 2008) (SR-NYSE-2008-60 
and SR-Amex-2008-62) (approving the Merger); see also Securities 
Exchange Act Release Nos. 58705 (Oct. 1, 2008), 73 FR 58995 (Oct. 8, 
2008) (approving adoption of equities rules based on those of NYSE) 
and 59022 (Nov. 26, 2008), 73 FR 73683 (Dec. 3, 2008) (amending 
equity rules to conform to NYSE NMM Pilot rules). Subsequently, NYSE 
Alternext US LLC was renamed NYSE Amex LLC, which was then renamed 
NYSE MKT LLC and continues to operate as a national securities 
exchange registered under Section 6 of the Securities Exchange Act 
of 1934, as amended (the ``Act''). See Securities Exchange Act 
Release Nos. 59575 (March 13, 2009), 74 FR 11803 (March 19, 2009) 
(SR-NYSEALTR-2009-24) and 67037 (May 21, 2012), 77 FR 31415 (May 25, 
2012) (SR-NYSEAmex-2012-32).
    \5\ See Securities Exchange Act Release No. 60758 (October 1, 
2009), 74 FR 51639 (October 7, 2009) (SR-NYSEAmex-2009-65). See also 
Securities Exchange Act Release Nos. 61030 (November 19, 2009), 74 
FR 62365 (November 27, 2009) (SR-NYSEAmex-2009-83) (extending Pilot 
to March 30, 2010); 61725 (March 17, 2010), 75 FR 14223 (March 24, 
2010) (SR-NYSEAmex-2010-28) (extending Pilot to September 30, 2010); 
62820 (September 1, 2010), 75 FR 54935 (September 9, 2010) (SR-
NYSEAmex-2010-86) (extending Pilot to January 31, 2011); 63615 
(December 29, 2010), 76 FR 611 (January 5, 2011) (SR-NYSEAmex-2010-
123) (extending Pilot to August 1, 2011); 64773 (June 29, 2011), 76 
FR 39453 (July 6, 2011) (SR-NYSEAmex-2011-43) (extending Pilot to 
January 31, 2012); 66042 (December 23, 2011), 76 FR 82326 (December 
30, 2011) (SR-NYSEAmex-2011-102) (extending Pilot to July 31, 2012); 
67495 (July 25, 2012), 77 FR 45406 (July 31, 2012) (SR-NYSEMKT-2012-
21) (extending the Pilot to January 31, 2013); 68559 (January 2, 
2013), 78 FR 1286 (January 8, 2013) (SR-NYSEMKT-2012-84) (extending 
Pilot to July 31, 2013); 69812 (June 20, 2013), 78 FR 38766 (June 
27, 2013) (SR-NYSEMKT-2013-51) (extending Pilot to January 31, 
2014); 71342 (January 17, 2014), 79 FR 4197 (January 24, 2014) (SR-
NYSEMKT-2014-02) (extending Pilot to July 31, 2014); and 72622 (July 
16, 2014), 79 FR 42600 (July 22, 2014) (SR-NYSEMKT-2014-57) 
(extending Pilot to December 31, 2014).
---------------------------------------------------------------------------

    The Exchange notes that parallel changes are proposed to be made to 
the rules of NYSE.\6\
---------------------------------------------------------------------------

    \6\ See SR-NYSE-2014-71.
---------------------------------------------------------------------------

Background \7\
---------------------------------------------------------------------------

    \7\ The information contained herein is a summary of the NMM 
Pilot. See Securities Exchange Act Release No. 58845 (October 24, 
2008), 73 FR 64379 (October 29, 2008) (SR-NYSE-2008-46) for a fuller 
description.
---------------------------------------------------------------------------

    In December 2008, the Exchange implemented significant changes to 
its equities market rules, execution technology and the rights and 
obligations of its equities market participants all of which were 
designed to improve execution quality on the Exchange. These changes 
are all elements of the Exchange's enhanced market model that it 
implemented through the NMM Pilot.
    As part of the NMM Pilot, the Exchange eliminated the function of 
equity specialists on the Exchange creating a new category of market 
participant, the Designated Market Maker or DMM.\8\ The DMMs, like 
specialists, have affirmative obligations to make an orderly market, 
including continuous quoting requirements and obligations to re-enter 
the market when reaching across to execute against trading interest. 
Unlike specialists, DMMs have a minimum quoting requirement \9\ in 
their assigned securities and no longer have a negative obligation. 
DMMs are also no longer agents for public customer orders.\10\
---------------------------------------------------------------------------

    \8\ See NYSE MKT Rule 103--Equities.
    \9\ See NYSE MKT Rule 104--Equities.
    \10\ See NYSE MKT Rule 60--Equities; see also NYSE MKT Rules 
104--Equities and 1000--Equities.
---------------------------------------------------------------------------

    In addition, the Exchange implemented a system change that allowed 
DMMs to create a schedule of additional non-displayed liquidity at 
various price points where the DMM is willing to interact with interest 
and provide price improvement to orders in the Exchange's system. This 
schedule is known as the DMM Capital Commitment Schedule (``CCS'').\11\ 
CCS provides the Display Book[supreg] \12\ with the amount of shares 
that the DMM is willing to trade at price points outside, at and inside 
the Exchange Best Bid or Best Offer (``BBO''). CCS interest is separate 
and distinct from other DMM interest in that it serves as the interest 
of last resort.
---------------------------------------------------------------------------

    \11\ See NYSE MKT Rule 1000--Equities.
    \12\ The Display Book system is an order management and 
execution facility. The Display Book system receives and displays 
orders to the DMMs, contains the order information, and provides a 
mechanism to execute and report transactions and publish the results 
to the Consolidated Tape. The Display Book system is connected to a 
number of other Exchange systems for the purposes of comparison, 
surveillance, and reporting information to customers and other 
market data and national market systems.
---------------------------------------------------------------------------

    The NMM Pilot further modified the logic for allocating executed 
shares among market participants having trading interest at a price 
point upon execution of incoming orders. The modified logic rewards 
displayed orders that establish the Exchange's BBO. During the 
operation of the NMM Pilot, orders or portions thereof that establish 
priority \13\ retain that priority until the portion of the order that 
established priority is exhausted. Where no one order has established 
priority, shares are distributed among all market participants on 
parity.
---------------------------------------------------------------------------

    \13\ See NYSE MKT Rule 72(a)(ii)--Equities.
---------------------------------------------------------------------------

    The NMM Pilot was originally scheduled to end operation on October 
1, 2009, or such earlier time as the Commission may determine to make 
the rules permanent. The Exchange filed to extend the operation of the 
Pilot on several occasions \14\ in order to prepare a rule filing 
seeking permission to make the above described changes permanent. The 
Exchange is currently still preparing such formal submission but does 
not expect that filing to be completed and approved by the Commission 
before December 31, 2014.
---------------------------------------------------------------------------

    \14\ See supra note 5.
---------------------------------------------------------------------------

Proposal To Extend the Operation of the NMM Pilot
    The Exchange established the NMM Pilot to provide incentives for 
quoting, to enhance competition among the existing group of liquidity 
providers and to add a new competitive market participant. The Exchange 
believes that the NMM Pilot allows the Exchange to provide its market 
participants with a trading venue that utilizes an enhanced market 
structure to encourage the addition of liquidity, facilitate the 
trading of larger orders more efficiently and operates to reward 
aggressive liquidity providers. As such, the Exchange believes that the 
rules governing the NMM Pilot should be made permanent. Through this 
filing the Exchange seeks to extend the current operation of the NMM 
Pilot until July 31, 2015, in order to allow the Exchange time to 
formally submit a filing to the Commission to convert the pilot rules 
to permanent rules.
    The proposed change is not otherwise intended to address any other 
issues and the Exchange is not aware of any problems that member 
organizations would have in complying with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\15\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\16\ in particular, because 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 regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system and, in general, to protect investors and the public interest 
and because it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change is designed to 
prevent

[[Page 62]]

fraudulent and manipulative acts and practices and to promote just and 
equitable principles of trade because it seeks to extend a pilot 
program that has already been approved by the Commission. The Exchange 
believes the proposed rule change is designed to facilitate 
transactions in securities and to remove impediments to, and perfect 
the mechanisms of, a free and open market and a national market system 
because the NMM Pilot provides its market participants with a trading 
venue that utilizes an enhanced market structure to encourage the 
addition of liquidity, facilitate the trading of larger orders more 
efficiently and operates to reward aggressive liquidity providers. 
Moreover, requesting an extension of the NMM Pilot will permit adequate 
time for: (i) The Exchange to prepare and submit a filing to make the 
rules governing the NMM Pilot permanent; (ii) public notice and 
comment; and (iii) completion of the 19b-4 approval process. Finally, 
the Exchange believes that it is subject to significant competitive 
forces, as described below in the Exchange's statement regarding the 
burden on competition. For these reasons, the Exchange believes that 
the proposal is consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\17\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The Exchange believes that extending the operation 
of the NMM Pilot will enhance competition among liquidity providers and 
thereby improve execution quality on the Exchange. The Exchange will 
continue to monitor the efficacy of the program during the proposed 
extended pilot period.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues. In such an environment, the Exchange must continually 
review, and consider adjusting the services it offers and the 
requirements it imposes to remain competitive with other U.S. equity 
exchanges. For the reasons described above, the Exchange believes that 
the proposed rule change reflects this competitive environment.

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 \18\ and Rule 19b-4(f)(6) thereunder.\19\ 
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.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\21\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative before the pilot's expiration. The Exchange states 
that an immediate operative date is necessary in order to immediately 
implement the proposed rule change so that member organizations could 
continue to benefit from the pilot program without interruption after 
December 31, 2014.
---------------------------------------------------------------------------

    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Specifically, the Commission believes that the proposal would allow the 
pilot to continue uninterrupted, thereby avoiding any potential 
investor confusion that could result from the temporary interruption in 
the pilot program. For this reason, the Commission designates the 
proposed rule change to be operative on December 31, 2014.\22\
---------------------------------------------------------------------------

    \22\ 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).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSEMKT-2014-109 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2014-109. 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

[[Page 63]]

10:00 a.m. and 3:00 p.m. Copies of such 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-NYSEMKT-2014-109 and should 
be submitted on or before January 23, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2014-30705 Filed 12-31-14; 8:45 am]
BILLING CODE 8011-01-P