Document ID: SEC-2010-1087-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2010-07-19T04:00Z

[Federal Register: July 19, 2010 (Volume 75, Number 137)]
[Notices]               
[Page 41914-41916]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19jy10-126]                         

[[Page 41914]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62485; File No. SR-NYSEArca-2010-67]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by NYSE Arca, Inc. To Establish 
Trading Collars for Market Orders

July 13, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on July 9, 2010, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') 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 Exchange. 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 NYSE Arca Equities Rule 7.31 to add 
trading collars for market orders at the Exchange. The text of the 
proposed rule change is available at the Exchange's principal office, 
the Commission's Web site at http://www.sec.gov, the Commission's 
Public Reference Room, and http://www.nyse.com.

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 is proposing to amend NYSE Arca Equities Rule 7.31(a), 
governing Market Orders, to add trading collars that would prevent a 
market order from trading more than a certain percentage away from a 
calculated reference price that would be continuously updated based on 
market activity. The proposed trading collars are distinct from the 
five-minute trading pauses pursuant to NYSE Arca Equities Rule 7.11 
that, as a consequence of recent extreme market volatility, will now be 
issued by listing markets if the transaction price of a security moves 
ten percent or more from a price in the preceding five-minute period. 
The Exchange believes that the proposed trading collars will serve as 
an additional safeguard that could help limit potential harm from 
extreme price volatility such as that recently experienced on May 6, 
2010 by preventing executions that occur a specified percentage away 
from the last sale in the first place.
    Under the proposed rule change, during Core Trading Hours, a market 
order to buy (sell) will not execute or route to another market center 
at a price above (below) the Trading Collar. As proposed, Trading 
Collars will apply only to market orders and not limit orders.
    As proposed, the Trading Collar will be based on a price that is a 
specified percentage away from the consolidated last sale price, which 
can be a price either reported on the Consolidated Tape or the UTP 
Trade Data Feed, depending on which market the security is listed. The 
upper boundary of the Trading Collar will be calculated by increasing 
the consolidated last sale price by a specific percentage, and the 
lower boundary will be calculated by decreasing the consolidated last 
sale price by the same specified percentage.
    The numerical percentage proposed to be used in the Trading Collar 
price calculations will be equal to the appropriate ``numerical 
guideline'' percentage set forth in paragraph (c)(1) of NYSE Arca 
Equity Rule 7.10 (Clearly Erroneous Executions) for the Core Trading 
Session, as applied to the Consolidated Last Sale Price. The current 
values of those percentages for various price ranges are indicated in 
the following table, but the percentages for Trading Collars will 
automatically be adjusted to match any future changes in the numerical 
guidelines in NYSE Arca Equity Rule 7.10. The Exchange notes that 
leveraged ETF/ETN securities will follow the 10%, 5%, and 3% percentage 
guidelines below, and will not be multiplied by a leverage multiplier, 
as provided for in NYSE Arca Equity Rule 7.10 for leveraged ETF/ETN 
securities.

------------------------------------------------------------------------
                                                           Collar price
              Consolidated last sale price                  percentage
                                                             deviation
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$25.00 or less..........................................              10
Above $25.00 to (and including) $50.00..................               5
Above $50.00............................................               3
------------------------------------------------------------------------

    The Exchange believes that the numerical guidelines applicable for 
clearly erroneous executions provide an appropriate threshold for 
determining whether to trigger a Trading Collar. These numerical 
guidelines have already been vetted through the notice and comment 
process as appropriate thresholds for when an execution may be found to 
be clearly erroneous. As proposed, because the Trading Collar will be 
based on an execution that is outside of a price that is already 
established as appropriate for being considered an erroneous execution, 
the Trading Collar will provide for a mechanism to prevent such clearly 
erroneous executions in the first instance.
    Collar prices will be continuously calculated and published for all 
securities traded on the Exchange regardless of listing market. A 
trading halt in a security will zero out the collar values, and 
calculations will restart with the first print after trading resumes.
    Market orders will interact with the Trading Collars on a given 
equity security in the following manner. A market order to sell will 
not execute at a price below the bottom Trading Collar price, but will 
execute at prices equal to or above it, including prices displayed by 
other automated markets that involve the routing of volume from the 
order to the other markets. Similarly, a market order to buy will not 
execute at a price above the top Trading Collar price but will execute 
at prices equal to or below it, including prices displayed by other 
automated markets that involve the routing of volume from the order to 
the other markets.
    Exchange systems will hold market orders, or portions thereof, that 
become restricted by the Trading Collar (unless marked immediate-or-
cancel) until (i) additional opportunities for execution consistent 
with the Trading Collar become available, either on the Exchange or on 
other markets, or (ii) a new Trading Collar is calculated based on a 
new consolidated last sale price, and the remaining portion of the 
order is then able to execute at prices consistent with the new Trading 
Collar. If there are multiple market orders that become restricted by 
the collar price, they will be ranked in time priority.

[[Page 41915]]

    The following example illustrates the operation of the Trading 
Collar:
    Consolidated last sale price of XYZ Corp. is 40.00.
    Bottom Trading Collar price is 38.00 (5% below 40.00).
    Market Evaluation (Buy Orders):
NYSE Arca 2000 shares at 39.00.
NYSE Arca 2000 shares at 38.60.
NYSE Arca 1000 shares at 38.40.
BATS 1000 shares at 38.20.
NYSE Arca 1000 shares at 38.00.
NYSE Arca 2000 shares at 37.50.
NYSE Arca 1000 shares at 37.00.
    Assume arrival of an order to Sell 10,000 shares at Market.
    Results:
     2000 shares execute on NYSE Arca at 39.00.
     2000 shares execute on NYSE Arca at 38.60.
     1000 shares execute on NYSE Arca at 38.40.
     1000 shares routed to BATS and execute there at 38.20.
     1000 shares execute on NYSE Arca at 38.00.
    The Sell Order is then restricted by the bottom Trading Collar and 
cannot execute below 38.00.
    Next, assume the first trade above at 39.00 is printed to the tape 
and becomes the new consolidated last sale price. Bottom collar price 
is now 37.05 (5% below 39.00).
    Results:
     2000 shares execute on NYSE Arca at 37.50.
    The Sell Order is then restricted by the new bottom Trading Collar 
and cannot execute below 37.05.
    Next, assume the second trade above at 38.60 is printed to the tape 
and becomes the new consolidated last sale price. Bottom collar price 
is now 36.67 (5% below 38.60).
    Results:
     1000 shares execute on NYSE Arca at 37.00, completing the 
order.
    The Trading Collar for the security will continue to adjust as each 
of the remaining executions above (as well as any executions in the 
security on other markets) is printed to the tape and becomes the new 
consolidated last sale price.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Securities Exchange Act of 1934 (the ``Act''),\3\ which requires 
the rules of an exchange to promote just and equitable principles of 
trade, 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 proposed rule change also is 
designed to support the principles of Section 11A(a)(1) \4\ of the Act 
in that it seeks to assure fair competition among brokers and dealers 
and among exchange markets. The Exchange believes that the proposed 
rule meets these requirements in that it ensures that market orders 
will not cause the price of a security to move beyond prices that could 
otherwise be determined to be a clearly erroneous execution, thereby 
protecting investors from receiving executions away from the prevailing 
prices at any given time.
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    \3\ 15 U.S.C. 78f(b)(5).
    \4\ 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 does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 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 \5\ and Rule 19b-
4(f)(6) thereunder.\6\
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 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 
Commission has waived the five-day pre-filing requirement.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest, 
because it will allow the Exchange to implement immediately a measure 
designed to reduce market volatility, and because the proposal is 
generally consistent with the rules of other exchanges.\7\ Therefore, 
the Commission designates the proposed rule change as operative upon 
filing.\8\
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    \7\ See BATS Rule 11.9(a)(2) and NYSE Arca Equities Rule 7.10.
    \8\ 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 may summarily abrogate 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-NYSEArca-2010-67 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-2010-67. 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

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Reference Room, 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-2010-67 and should 
be submitted on or before August 9, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-17490 Filed 7-16-10; 8:45 am]
BILLING CODE 8011-01-P