Document ID: SEC-2013-0116-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2013-01-22T05:00Z

[Federal Register Volume 78, Number 14 (Tuesday, January 22, 2013)]
[Notices]
[Pages 4524-4526]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01173]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68658; File No. SR-NYSE-2013-01]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Extend the Pilot Program That Provides an Exception to NYSE Rule 2B by 
Permitting the Exchange's Equity Ownership Interest in BIDS Holdings 
L.P.

January 15, 2013.
    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 January 2, 2013, the New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 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 for an additional 12 months the 
January 22, 2013 expiration date of the pilot program that provides an 
exception to NYSE Rule 2B by permitting the Exchange's equity ownership 
interest in BIDS Holdings L.P. (``BIDS Holdings''), which is the parent 
company of a member of the Exchange, and BIDS Holdings' affiliation 
with the New York Block Exchange LLC, an affiliate of the Exchange. 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, Proposed Rule Change

1. Purpose
    On January 22, 2009, the Securities and Exchange Commission (the 
``Commission'' or ``SEC'') approved the governance structure proposed 
by the Exchange with respect to the New York Block Exchange (``NYBX''), 
an electronic trading facility of the Exchange for NYSE-listed 
securities that was established by means of a joint venture between the 
Exchange and BIDS Holdings.\3\ The governance structure that was 
approved is reflected in the Limited Liability Company Agreement of New 
York Block Exchange LLC (the ``Company''), the entity that owns and 
operates NYBX. Under the governance structure approved by the 
Commission, the Exchange and BIDS Holdings each own a 50% economic 
interest in the Company. In addition, the Exchange, through its wholly-
owned subsidiary NYSE Market, Inc., owns less than 10% of the aggregate 
limited partnership interest in BIDS Holdings. BIDS Holdings is the 
parent company of BIDS Trading, L.P. (``BIDS Trading''), which became a 
member of the Exchange in connection with the establishment of NYBX.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 59281 (January 22, 
2009), 74 FR 5014 (January 28, 2009) (SR-NYSE-2008-120) (the 
``Approval Order'').
---------------------------------------------------------------------------

    The foregoing ownership arrangements would violate NYSE Rule 2B 
without an exception from the Commission.\4\ First, the Exchange's 
indirect ownership interest in BIDS Trading violates the prohibition in 
Rule 2B against the Exchange maintaining an ownership interest in a 
member organization. Second, BIDS Trading is an affiliate of an 
affiliate of the Exchange,\5\ which violates the prohibition in Rule 2B 
against a member of the Exchange having such status. Consequently, in 
the Approval Order, the Commission permitted an exception to these two 
potential violations of NYSE Rule 2B, subject to a number of 
limitations and conditions. One of the conditions for Commission 
approval was that the proposed exception from NYSE Rule 2B to permit 
NYSE's indirect ownership/interest in BIDS Trading and BIDS Trading's 
affiliation with the Company (which is an affiliate of NYSE) would be 
for a pilot period of 12 months.\6\
---------------------------------------------------------------------------

    \4\ NYSE Rule 2B provides, in relevant part, that ``[w]ithout 
prior SEC approval, the Exchange or any entity with which it is 
affiliated shall not, directly or indirectly, acquire or maintain an 
ownership interest in a member organization. In addition, a member 
organization shall not be or become an affiliate of the Exchange, or 
an affiliate of any affiliate of the Exchange. * * * The term 
affiliate shall have the meaning specified in Rule 12b-2 under the 
Act.''
    \5\ Specifically, the Company is an affiliate of the Exchange, 
and BIDS Trading is an affiliate of the Company based on their 
common control by BIDS Holdings. The affiliation in each case is the 
result of the 50% ownership interest in the Company by each of the 
Exchange and BIDS Holdings.
    \6\ See Approval Order at 5018.
---------------------------------------------------------------------------

    In discussing the pilot basis of the exception to NYSE Rule 2B, the 
Approval Order noted that the pilot period ``will provide NYSE and the 
Commission an opportunity to assess whether there might be any adverse 
consequences of the exception and whether a permanent exception is 
warranted.'' \7\ The original 12-month pilot period expired on January 
22, 2010 and was extended for three additional 12-month periods to 
January 22, 2013.\8\ While the Exchange believes that the experience to 
date operating under the exception to Rule 2B fully justifies making 
the exception permanent, the Exchange now seeks to extend the ending 
date for the pilot program for an additional 12 months, to January 22, 
2014, to allow additional time, if necessary, for the Commission to 
obtain and review the information it needs in order to make its 
determination regarding any adverse consequences of the exception and 
whether a permanent exception is warranted. During the proposed 
extension of the pilot program period, the Exchange's current indirect 
ownership interest in BIDS Trading \9\

[[Page 4525]]

and BIDS Trading's affiliation with the Company would continue to be 
permitted.
---------------------------------------------------------------------------

    \7\ Id. at 5019.
    \8\ See Securities Exchange Act Release Nos. 61409 (January 22, 
2010), 75 FR 4889 (January 29, 2010) (SR-NYSE-2010-04); 63545 
(December 14, 2010), 75 FR 80088 (December 21, 2010) (SR-NYSE-2010-
82); and 66059 (December 27, 2011), 77 FR 145 (January 3, 2012) (SR-
NYSE-2011-67).
    \9\ Another condition for the exception to NYSE Rule 2B 
specified in the Approval Order was that the Exchange's equity 
interest in BIDS Holdings must remain less than 9%, absent prior 
Commission approval of any increase. See Approval Order at 5018. 
Subsequently, the Commission approved a proposal by the Exchange to 
slightly increase the ceiling on its equity ownership in BIDS 
Holdings to less than 10%, and that will be the applicable 
limitation during the extension of the pilot period. See Securities 
Exchange Act Release No. 61257 (December 30, 2009), 75 FR 500 
(January 5, 2010) (SR-NYSE-2009-116).
---------------------------------------------------------------------------

    If the Commission should determine prior to the end of the extended 
pilot period that a permanent exception to NYSE Rule 2B is warranted, 
the Exchange would have the option of submitting a proposed rule change 
to accomplish this and simultaneously terminate the pilot program.
    The proposed change is not otherwise intended to address any other 
matter, and the Exchange is not aware of any significant problem that 
the Exchange would have in complying with the proposed change.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\10\ in general, and furthers the objectives of Section 6(b)(1) of 
the Act,\11\ in particular, which requires a national securities 
exchange to be so organized and have the capacity to carry out the 
purposes of the Act and to comply, and to enforce compliance by its 
members and persons associated with its members, with the provisions of 
the Act. The proposed rule change is also consistent with, and furthers 
the objectives of, Section 6(b)(5) of the Act,\12\ 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 mechanisms of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(1).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In the Approval Order, the Commission determined that the proposed 
exception from NYSE Rule 2B to permit NYSE's indirect ownership 
interest in BIDS Trading and BIDS Trading's affiliation with the 
Company was consistent with the Act, including Section 6(b)(5) 
thereof.\13\ As the basis for its determination, the Commission cited 
the specific limitations and conditions listed in the Approval Order to 
which its approval of the exception to NYSE Rule 2B was subject,\14\ 
stating that ``[t]hese conditions appear reasonably designed to 
mitigate concerns about potential conflicts of interest and unfair 
competitive advantage,'' that ``[t]hese conditions appear reasonably 
designed to promote robust and independent regulation of BIDS 
[Trading],'' and that [t]he Commission believes that, taken together, 
these conditions are reasonably designed to mitigate potential 
conflicts between the Exchange's commercial interest in BIDS [Holdings] 
and its regulatory responsibilities with respect to BIDS [Trading].'' 
\15\ The Exchange believes that the exception from NYSE Rule 2B 
described above will continue to be consistent with the Act during that 
extension because, other than the ending date of the pilot period and 
the aforementioned small increase in the ceiling on the Exchange's 
equity interest in BIDS Holdings, these same limitations and conditions 
will continue to be applicable during the additional extension of the 
pilot period.
---------------------------------------------------------------------------

    \13\ See Approval Order at 5018-5019.
    \14\ Id. at 5018.
    \15\ Id. at 5019.
---------------------------------------------------------------------------

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. Specifically, the proposed 
rule change is consistent with the Approval Order, the conditions of 
which are reasonably designed to mitigate concerns about potential 
conflicts of interest and unfair competitive advantage. In this regard, 
although BIDS Holdings and the Exchange are affiliated, NYSE and BIDS 
Holdings have established and maintained procedures and internal 
controls that are designed to prevent BIDS Holdings and its affiliates 
from deriving any unfair informational advantage resulting from its 
affiliation with the Exchange.

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 \16\ and Rule 19b-4(f)(6) thereunder.\17\ 
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\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ In addition, Rule 19-b-4(f)(6)(iii) 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.
---------------------------------------------------------------------------

    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because such waiver would allow the benefits of the pilot program to 
operate without interruption after January 22, 2013. Therefore, the 
Commission designates the proposed rule change as operative upon 
filing.\19\
---------------------------------------------------------------------------

    \19\ For the 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-NYSE-2013-01 on the subject line.

[[Page 4526]]

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2013-01. 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 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-NYSE-2013-01 and should be 
submitted on or before February 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01173 Filed 1-18-13; 8:45 am]
BILLING CODE 8011-01-P