Document ID: SEC-2012-2014-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2012-12-07T05:00Z

[Federal Register Volume 77, Number 236 (Friday, December 7, 2012)]
[Notices]
[Pages 73106-73109]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29567]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68340; File No. SR-NYSEMKT-2012-65]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rule 
123C(9)(a)(1)(ii)--Equities To Delete the Requirement That the Order 
Acceptance Cut-Off Time Cannot Be Past 4:30 p.m.

 December 3, 2012.
    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 November 20, 2012, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'') filed 
with the

[[Page 73107]]

Securities and Exchange Commission (``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.
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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 123C(9)(a)(1)(ii)--Equities to 
delete the requirement that the order acceptance cut-off time cannot be 
past 4:30 p.m. 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 amend Rule 123C(9)(a)(1)(ii)--Equities to 
delete the requirement that the order acceptance cut-off time cannot be 
past 4:30 p.m. (or 30 minutes after the scheduled close in the case of 
an earlier close).\3\
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    \3\ The Exchange notes that parallel changes are proposed to be 
made to the rules of New York Stock Exchange LLC (``NYSE''). See 
Securities Exchange Act Release No. 68282 (Nov. 21, 2012), 77 FR 
71023 (Nov. 28, 2012) (SR-NYSE-2012-63).
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Background
    Pursuant to Rule 123C(9)(a)(1)--Equities, the Exchange may suspend 
Rule 52--Equities (Hours of Operation) to resolve an extreme order 
imbalance that may result in a price dislocation at the close as a 
result of an order entered into Exchange systems, or represented to a 
Designated Market Maker (``DMM'') orally at or near the close. Rule 
123C(9)(a)(1)--Equities was intended to be and has been invoked to 
attract offsetting interest in rare circumstances where there exists an 
extreme imbalance at the close such that a DMM is unable to close the 
security without significantly dislocating the price.
    Pursuant to Rule 123C(9)(a)(1)(ii)--Equities, once it has been 
determined to suspend Rule 52 and solicit offsetting interest, the 
Exchange is responsible for soliciting such offsetting interest from 
both on-Floor and off-Floor participants. Such solicitation requests 
include, at a minimum, the security symbol, the imbalance amount and 
side, the last sale price, and an order acceptance cut-off time. The 
Exchange designates the order acceptance cut-off time, but the Rule 
currently provides that in no event shall the order acceptance cut-off 
time be later than 4:30 p.m. (or 30 minutes after the scheduled close 
in the case of an earlier close).
    Currently, the Exchange uses Trader Updates to solicit interest 
from off-Floor participants. The Exchange's Trader Updates are posted 
on the Exchange's Web site and are distributed both by RSS feed and by 
email to anyone who subscribes to receive such free updates.
    Since January 3, 2011, when the Rule, which was previously operated 
on a pilot bases, became a permanent rule, the Exchange and NYSE, which 
has an identical rule, have invoked the relief available pursuant to 
the Rule only once, on September 21, 2012. In 2010, Rule 
123C(9)(a)(1)--Equities was invoked only three times on both markets.
Proposed Amendment
    The Exchange proposes to amend Rule 123C(9)(a)(1)(ii)--Equities to 
delete the requirement that the order acceptance cut-off time shall be 
no later than 4:30 p.m., or in the case of an early scheduled close, 30 
minutes after the closing time. The Exchange believes it is appropriate 
to delete the bright-line cut off time because it hinders the ability 
of the Exchange to ensure a fair and orderly close if adhering to the 
4:30 p.m. order acceptance cut-off time is not possible under the 
particular circumstances.
    In particular, the Exchange notes that for two of the four times 
that the rule has been invoked since 2010 on both the Exchange and the 
NYSE, the NYSE has extended the order acceptance cut-off time past 4:30 
p.m. The reasons for the extensions differed, but the Exchange believes 
that given the rarity of the need to invoke the provisions of Rule 
123C(9)(a)(1)--Equities in the first instance, together with what the 
NYSE has experienced in those few events with its parallel rule, it is 
appropriate to delete the bright-line 4:30 p.m. cut-off time.
    For example, on February 12, 2010, due to corporate actions in 
Berkshire Hathaway (BRK) Class A and B securities, an NYSE-listed 
security, there was significant trading volume in those securities, 
including at the close. In the circumstances, it was determined that 
the most efficient manner to effect the close of trading in those 
securities was to effect the closing transaction in BRK-B before 
closing the BRK-A shares. After closing the BRK-B security at 4:19 
p.m., the DMM assessed the shares eligible to be executed for the BRK-A 
close and determined that the imbalance was significant enough to 
invoke the procedures of NYSE Rule 123C(9)(a)(1). Due to the complexity 
of the situation, the NYSE was not able to issue its solicitation of 
offsetting interest until 4:27 p.m. Because three minutes was not 
sufficient time to receive incoming offsetting interest and close the 
security, the NYSE accepted order flow past the 4:30 p.m. order 
acceptance cut-off time. The NYSE filed with the Commission a rule 
proposal that permitted the temporary suspension of NYSE Rule 
123C(9)(a)(1)(ii) 4:30 p.m. order acceptance cut-off time.\4\
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    \4\ See Securities Exchange Act Release No. 61549 (Feb. 19, 
2010), 75 FR 9009 (Feb. 26, 2010) (SR-NYSE-2010-09).
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    More recently, on Friday, September 21, 2012, there was a buy 
imbalance in Weatherford International LTD (WFT), an NYSE-listed 
security, that could not be satisfied by sell orders on the Book. 
Accordingly, the NYSE invoked procedures pursuant to NYSE Rule 123C(9) 
to solicit interest from both off-Floor and on-Floor participants to 
offset that imbalance. While the Exchange initiated publication of 
solicitation for such offsetting interest immediately following 4:00 
p.m., due to delays in the Exchange's web and email systems, the 
Exchange's two solicitations of interest, which were sent at 4:22 p.m. 
and 4:28 p.m., did not leave Exchange systems until 4:29 p.m. and 4:35 
p.m., respectively, and were time-stamped accordingly. Because of these 
delays, the Exchange extended the order acceptance cut-off time to 4:35 
p.m., which is past the time prescribed in NYSE Rule 123C(9)(a)(1)(ii). 
By extending the order acceptance cut-off time to 4:35 p.m., the 
Exchange was able to attract sufficient sell-side interest to offset 
the buy imbalance and the stock was closed shortly thereafter on a 
transaction of 7.822 million shares,

[[Page 73108]]

unchanged from the last sale price of $13.54.\5\
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    \5\ On September 27, 2012, the NYSE published a Trader Update 
that provided the public with notice of this issue: http://traderupdates.nyse.com/2012/09/weatherford_international_ltd.html.
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    Although the NYSE did not have rule authority to extend the order 
acceptance cut-off time in the WFT closing situation to 4:35 p.m., the 
NYSE believes that it acted appropriately under the circumstances to 
ensure that WFT could close in a fair and orderly manner at a price 
that was not significantly dislocated from the last sale price. In 
particular, the issue that the NYSE experienced with respect to its web 
and email system was unanticipated and the NYSE sought to respond in a 
manner that protected investors and the public interest by ensuring a 
fair and orderly close.
    The Exchange believes it is appropriate to provide the Exchange 
with authority to designate an order acceptance cut-off time that is 
tailored to the particular situation, rather than have to adhere to the 
4:30 p.m. time frame. The Exchange's ultimate goal is to ensure a fair 
and orderly close in a manner that is as close to the official 4:00 
p.m. closing time as possible. However, depending on the circumstances, 
whether because of the complexity of the closing process for a 
particular security or because of a system or technology issue, 
requiring a bright-line order acceptance time may not be appropriate.
    Moreover, the Exchange believes that adhering to such a bright-line 
cut-off time could harm investors and the public. For example, in both 
the BRK-A and WFT closes, if the NYSE had adhered to the 4:30 p.m. cut-
off time, the NYSE would not have been able to complete its 
solicitation of offsetting interest. Without such offsetting interest, 
the Exchange had two alternatives, either close the stock at a price 
significantly dislocated from the last sale price, or invoke an order 
imbalance halt and not hold a closing transaction. The Exchange does 
not believe that either alternative is in the best interest of 
investors or the public. Rather, the Exchange believes that ensuring 
that the closing price is not significantly dislocated from the last 
sale, even if that means a delayed closing time, would benefit 
investors and the public.\6\
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    \6\ The Exchange proposes to make clarifying changes to 
paragraphs (a)(1), (a)(1)(v), (a)(2), and (b) of Rule 123C(9)--
Equities and Supplementary Material .20 and .30 to Rule 123C--
Equities to either add the phrase ``Equities'' or delete the term 
``NYSE'' in connection with references to other equity rules in the 
rule text.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \7\ of the 
Securities Exchange Act of 1934 (the ``Act''), in general, and furthers 
the objectives of Section 6(b)(5),\8\ 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, and it is not designed to 
permit unfair discrimination among customers, brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that providing the Exchange 
with the authority to designate the order cut-off time as appropriately 
tailored to the particular situation removes impediments to and 
perfects the mechanism of a free and open market because it enables the 
Exchange to complete the process to solicit interest to offset an 
imbalance at the close that would otherwise result in a significant 
price dislocation. Without the relief requested herein, the Exchange 
may not be able to complete the process to solicit offsetting interest, 
which would result in either the stock closing at a dislocated price, 
or require the Exchange to invoke an order imbalance halt in the 
security. The Exchange believes such solutions could harm investors and 
the public because of either an unnecessarily dislocated closing price, 
or in the case of an imbalance halt, orders intended for the closing 
transaction would not be executed. The Exchange further believes that 
the proposed rule change would protect investors and the public 
interest because it would enable the Exchange to complete the process 
to ensure that the closing price that may be closer to the last sale 
price, rather than a closing price that is significantly dislocated 
from the last sale price.

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 \9\ and Rule 19b-4(f)(6) thereunder.\10\ 
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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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
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    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-2012-65 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-2012-65. This 
file number should be included on the

[[Page 73109]]

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 
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-2012-65 and should be submitted on or before 
December 28, 2012.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29567 Filed 12-6-12; 8:45 am]
BILLING CODE 8011-01-P