Document ID: SEC-2009-1201-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca Inc.
Posted Date: 2009-08-24T04:00Z

[Federal Register: August 24, 2009 (Volume 74, Number 162)]
[Notices]               
[Page 42725-42727]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24au09-121]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60518; File No. SR-NYSEArca-2009-70]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Amending Rule 10.12 (Minor Rule Plan)

August 18, 2009.
    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 July 29, 2009, 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\ 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 10.12-Minor Rule Plan. The text 
of the proposed rule change is attached as Exhibit 5 to the 19b-4 form. 
A copy of this filing is available on the Exchange's Web site at http:/
/www.nyse.com, at the Exchange's principal office 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 NYSE Arca Minor Rule Plan (``MRP'') fosters compliance with 
applicable rules and also helps to reduce the number and extent of rule 
violations committed by Options Trading Permit (``OTP'') Holders, OTP 
Firms and associated persons. The prompt imposition of a financial 
penalty helps to quickly educate and improve the conduct of OTP 
Holders, OTP Firms and associated persons that have engaged in 
inadvertent or otherwise minor violations of the Exchange's rules. By 
promptly imposing a meaningful financial penalty for such violations, 
the MRP focuses on correcting conduct before it gives rise to more 
serious enforcement action.
    The Exchange is now proposing to incorporate additional violations 
into the MRP, these violations include (i) trading in restricted 
classes; and (ii) failure to report position and account information. 
The Exchange is also proposing to increase fine levels for certain 
violations presently included in the MRP. The increases [sic] fine 
levels will be applicable for violations of due diligence, priority 
rules and order exposure rules. A brief description of each proposed 
changes [sic] is shown below.
Proposed Rules 10.12(h)(22) and 10.12(k)(i)(22)
    NYSE Arca Rule 5.4(a) provides, with limited exceptions, that the 
Exchange may prohibit any opening purchase transactions in a series of 
options to the extent it deems such action necessary or appropriate. 
Accordingly, OTP Holders effecting opening transactions in restricted 
series, that are inconsistent with the terms of any such restriction, 
will be considered to be in violation of Rule 5.4(a). The Exchange is 
proposing to incorporate violations related to trading in restricted 
series into the MRP under Exchange Rule 10.12(h)(22).
    The Exchange is proposing to implement a fine of $1,000 for the 
first violation in a rolling twenty-four month period. A second 
violation within the same period would be allocated a $2,500 fine and a 
third violation would be allocated a $5,000 fine. The schedule of fines 
will be included under Rule 10.12(k)(i)(22). Any subsequent violations 
within a rolling twenty-four month period would be subject to formal 
disciplinary proceedings by the Exchange. NYSE Arca believes that 
establishing a rolling twenty-four month period for cumulative 
violations will serve as an effective deterrent to future violative 
conduct.
    NYSE Arca believes that in most cases these violations may be 
handled efficiently through the MRP, however, as with other violations, 
any egregious activity or activity that is believed to be manipulative 
will continue to be subject to formal disciplinary proceedings.
Proposed Rules 10.12(h)(23) and 10.12(k)(i)(23)
    Among other things, Rule 6.6(a) requires each OTP Holder and OTP 
Firm to report to the Exchange the account and position information of 
any customer who, acting alone, or in concert with others, on the 
previous business day maintained aggregate long or short positions on 
the same side of the market of 200 or more contracts of any single 
class of option contracts dealt in on the Exchange. OTP Holders and OTP 
Firms report this information on the Large Option Position Report 
(``LOPR'').
    NYSE Arca is proposing to incorporate violations for failing to 
accurately report position and account information in accordance with 
Rule 6.6(a) into the MRP. The Exchange believes most of these 
violations are inadvertent and technical in nature. Not having LOPR 
reporting violation necessarily subject to formal

[[Page 42726]]

disciplinary proceedings will allow the Exchange to more expeditiously 
process routine violations under the MRP Plan.
    In addition, NYSE Arca, as a member of the Intermarket Surveillance 
Group (``ISG''), as well as certain other self-regulatory 
organizations, have entered into an agreement pursuant to Section 17(d) 
of the Securities Exchange Act of 1934 (as amended) (``17d-2 
Agreement''), which incorporates the surveillance and sanctions of LOPR 
reporting violations. As such, the SROs have agreed that their 
respective rules concerning the reporting of large option positions are 
common rules. As a result, adding LOPR reporting violations to the MRP 
will further result in the consistency of rules among SROs who are 
parties to the 17d-2 Agreement with respect to LOPR reporting 
surveillance.
    The Exchange is proposing to implement a fine of $1,000 for the 
first violation in a rolling twenty-four month period. A second 
violation within the same period would be allocated a $2,500 fine and a 
third violation would be allocated a $5,000 fine. The schedule of fines 
will be included under Rule 10.12(k)(i)(23). Any subsequent violations 
within a rolling twenty-four month period would be subject to formal 
disciplinary proceedings by the Exchange. NYSE Arca believes that 
establishing a rolling twenty-four month period for cumulative 
violations will serve as an effective deterrent to future violative 
conduct.
    NYSE Arca believes that in most cases these LOPR reporting 
violations may be handled efficiently through the MRP, however, as with 
other violations, any egregious activity or activity that is believed 
to be manipulative will continue to be subject to formal disciplinary 
proceedings.
Changes to Rule 10.12(k)(i)(1), Rule 10.12(k)(i)(34), and Rule 
10.12(k)(i)(40)
    NYSE Arca Rule 6.46(a) requires that a Floor Broker handling an 
order is to use due diligence to execute the order at the best price or 
prices available to him, in accordance with the Rules of the Exchange. 
Violators of Rule 6.46(a) are subject to a sanction pursuant to the 
MRP, specifically, Rule 10.12(k)(i)(1). Suggested fines for violations 
of Rule 6.46(a) are presently $1,000 for the first violation in a 
rolling twenty-four month period, $2,500 for a second violation within 
the same period fine and a third violation is subject to a $3,500 fine.
    NYSE Arca Rule 6.47A is designed to ensure that orders are properly 
exposed on the NYSE Arca electronic trading system prior to interaction 
by the initiating firm. The rule states that users may not execute as 
principal orders they represent as agent unless (i) agency orders are 
first exposed on the Exchange for at least one (1) second or (ii) the 
User has been bidding or offering on the Exchange for at least one (1) 
second prior to receiving an agency order that is executable against 
such bid or offer. This rule prevents a user from executing agency 
orders to increase its economic gain from trading against the order 
without first giving other trading interest on the Exchange an 
opportunity to either trade with the agency order or to trade at the 
execution price when the User was already bidding or offering on the 
book. Violators of Rule 6.47A are subject to a sanction pursuant to the 
MRP, specifically, Rule 10.12(k)(i)(34). Suggested fines for violations 
of Rule 6.47A are presently $500 for the first violation in a rolling 
twenty-four month period, $1,000 for a second violation within the same 
period fine and a third violation is subject to a $2,500 fine.
    NYSE Arca Rule 6.75 governs the priority of bids and offers in open 
outcry trading. In general, Rule 6.75 states that the highest bid/
lowest offer shall have priority over all other orders. In the event 
there are two or more bids/offers for the same option contract 
representing the best price and one such bid/offer is displayed in the 
Consolidated Book, such bid shall have priority over any other bid at 
the post. In addition, if two or more bids/offers represent the best 
price and a bid/offer displayed in the Consolidated Book is not 
involved, priority shall be afforded to such bids in the sequence in 
which they are made. Rule 6.75 also contains certain provisions for 
[sic] related to split-price priority and priority of complex orders. 
Violators of any part of Rule 6.75 are subject to a sanction pursuant 
to the MRP, specifically Rule 10.12(k)(i)(40). Suggested fines for 
violations of Rule 6.75 are presently $500 for the first violation in a 
rolling twenty-four month period, $1,000 for a second violation within 
the same period fine and a third violation is subject to a $2,000 fine.
    At this time the Exchange believes the current monetary fine levels 
contained in the MRP, for the above mentioned violations, are 
inadequate, given the serious nature of these rules. In order to act as 
an effective deterrent against future violations, while also serving as 
a just penalty for those who commit these violations, the Exchange 
feels an increase in the fine levels for these three violations is 
warranted. NYSE Arca now proposes fine levels of $1,000 for the first 
violation in a rolling twenty-four month period, $2,500 for a second 
violation within the same period fine and $5,000 for a third violation 
within the same period fine. These fine levels will apply to all three 
types of violations.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \3\ of the 
Act, in general, and furthers the objectives of Section 6(b)(5) \4\ 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, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
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    The proposal is also consistent with Section 6(b)(6) \5\ and 
6(b)(7),\6\ which requires that members and persons associated with 
members are appropriately disciplined for violations of Exchange rules 
and are provided a fair procedure for disciplinary procedures.
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    \5\ 15 U.S.C. 78f(b)(6).
    \6\ 15 U.S.C. 78f(b)(7).
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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

    Within 35 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 the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

[[Page 42727]]

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-NYSEArca-2009-70 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-NYSEArca-2009-70. 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 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 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-NYSEArca-2009-70 and should 
be submitted on or before September 14, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-20241 Filed 8-21-09; 8:45 am]

BILLING CODE 8010-01-P