Document ID: SEC-2009-1100-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Amex Disciplinary Rule 476A To Add Rule 104(a)(1)(A)-NYSE Amex Equities To Its "List of Exchange Rule Violations and Fines Applicable Thereto"
Posted Date: 2009-08-05T04:00Z

[Federal Register: August 5, 2009 (Volume 74, Number 149)]
[Notices]               
[Page 39130-39132]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05au09-128]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60398; File No. NYSEAmex-2009-47]

 
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending NYSE Amex 
Disciplinary Rule 476A To Add Rule 104(a)(1)(A)--NYSE Amex Equities To 
Its ``List of Exchange Rule Violations and Fines Applicable Thereto''

July 30, 2009.
    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 22, 2009, NYSE Amex LLC (the ``Exchange'' or ``NYSE 
Amex'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially 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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[[Page 39131]]

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

    The Exchange proposes to amend NYSE Amex Disciplinary Rule 476A to 
add Rule 104(a)(1)(A)--NYSE Amex Equities to its ``List of Exchange 
Rule Violations and Fines Applicable Thereto.'' \3\ The text of the 
proposed rule change is available at the Exchange, the Commission's 
Public Reference Room, and http://www.nyse.com.
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    \3\ New York Stock Exchange LLC (``NYSE'') has submitted a 
companion rule filing proposing corresponding amendments to NYSE 
Rule 476A. See SR-NYSE-2009-72 (formally submitted on July 22, 
2009).
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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 Exchange proposes to amend NYSE Amex Disciplinary Rule 476A to 
add Rule 104(a)(1)(A)--NYSE Amex Equities to its ``List of Exchange 
Rule Violations and Fines Applicable Thereto.''

Background

    As described more fully in a related rule filing,\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, a subsidiary of AMC, became a subsidiary of NYSE 
Euronext called NYSE Alternext US LLC,\5\ and continues to operate as a 
national securities exchange registered under Section 6 of the Act.\6\ 
The effective date of the Merger was October 1, 2008.
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    \4\ 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).
    \5\ The Exchange changed its name to NYSE Amex in March 2009. 
See Securities Exchange Act Release No. 59575 (March 13, 2009), 74 
FR 11803 (March 19, 2009) (SR-NYSEALTR-2009-24).
    \6\ 15 U.S.C. 78f.
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    In connection with the Merger, on December 1, 2008, the Exchange 
relocated all equities trading conducted on the Exchange legacy trading 
systems and facilities located at 86 Trinity Place, New York, New York, 
to trading systems and facilities located at 11 Wall Street, New York, 
New York (the ``Equities Relocation''). The Exchange's equity trading 
systems and facilities at 11 Wall Street (the ``NYSE Amex Trading 
Systems'') are operated by the NYSE on behalf of the Exchange.\7\
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    \7\ See Securities Exchange Act Release No. 58705 (October 1, 
2008), 73 FR 58995 (October 8, 2008) (SR-Amex 2008-63).
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    As part of the Equities Relocation, NYSE Amex adopted NYSE Rules 1-
1004, subject to such changes as necessary to apply the Rules to the 
Exchange, as the NYSE Amex Equities Rules to govern trading on the NYSE 
Amex Trading Systems.\8\ The NYSE Amex Equities Rules, which became 
operative on December 1, 2008, are substantially identical to the 
current NYSE Rules 1-1004 and the Exchange continues to update the NYSE 
Amex Equities Rules as necessary to conform with rule changes to 
corresponding NYSE Rules filed by the NYSE.
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    \8\ See Securities Exchange Act Release No. 58705 (October 1, 
2008), 73 FR 58995 (October 8, 2008) (SR-Amex 2008-63); Securities 
Exchange Act Release No. 58833 (October 22, 2008), 73 FR 64642 
(October 30, 2008) (SR-NYSE-2008-106); Securities Exchange Act 
Release No. 58839 (October 23, 2008), 73 FR 64645 (October 30, 2008) 
(SR-NYSEALTR-2008-03); Securities Exchange Act Release No. 59022 
(November 26, 2008), 73 FR 73683 (December 3, 2008) (SR-NYSEALTR-
2008-10); and Securities Exchange Act Release No. 59027 (November 
28, 2008), 73 FR 73681 (December 3, 2008) (SR-NYSEALTR-2008-11).
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Current Rules 104- and 103B- NYSE Amex Equities

    Current Rule 104-NYSE Amex Equities requires, inter alia, 
Designated Market Makers (``DMMs'') registered in one or more 
securities traded on the Exchange to engage in a course of dealings for 
their own account to assist in the maintenance of a fair and orderly 
market, insofar as reasonably practicable, by contributing liquidity 
when lack of price continuity and depth, or disparity between supply 
and demand, exists or is reasonably to be anticipated.\9\ This includes 
an affirmative obligation to provide quotes at the National Best Bid or 
Offer a minimum percentage of the trading day (``Affirmative Quote 
Obligation'').
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    \9\ See Rule 104(f)(ii)-NYSE Amex Equities.
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    The DMMs' Affirmative Quote Obligation is set forth in Rule 
104(a)(1)(A)-NYSE Amex Equities. Section (a)(1)(A) of Rule 104 requires 
DMMs to maintain a bid or an offer at the National Best Bid and 
National Best Offer (``inside'') at least 10% of the trading day for 
securities in which the DMM unit is registered with an average daily 
volume on the Exchange of less than one million shares, and at least 5% 
for securities in which the DMM unit is registered with an average 
daily volume equal to or greater than one million shares. Time at the 
inside is calculated as the average percentage of time the DMM unit has 
a bid or offer at the inside. In calculating whether the DMM is meeting 
the 10% and 5% requirement, credit may be given for executions for the 
liquidity provided by the DMM.\10\ DMM Reserve or other hidden orders 
are not included in the inside quote calculations.
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    \10\ When a DMM sends an s-quote to establish a new best bid or 
best offer, the DMM's s-quote may end up executing immediately 
against dark liquidity inside the spread rather than being quoted. 
Absent rule relief, the s-quote would not be counted toward the DMM 
Unit's quoting requirement, even though the DMM's intent was to add 
liquidity to the market, and even though the s-quote in fact 
resulted in an execution. To address this, the Exchange added a 
provision to Rule 104-NYSE Amex Equities that allows the Exchange to 
give credit to a DMM unit that did not meet its quoting requirement 
as a result of the continuous immediate execution of its s-quotes.
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Proposed Rule Change

    As noted above, the Exchange proposes to add Rule 104(a)(1)(A)-NYSE 
Amex Equities to its ``List of Exchange Rule Violations and Fines 
Applicable Thereto.''
    Under the Exchange's Minor Rule Violation Plan, NYSE Amex 
Disciplinary Rule 476A, the Exchange may impose a fine, not to exceed 
$5,000, on any member, member organization, allied member, approved 
person or registered or non-registered employee of a member or member 
organization for a minor violation of certain specified Exchange rules. 
Fines provide a meaningful sanction for rule violations when the 
initiation of a disciplinary procedure under Disciplinary Rule 476 is 
unwarranted given the facts and circumstances of the violation, or when 
the violation calls for a stronger response informal discipline than an 
admonition letter.\11\
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    \11\ The Exchange's current Minor Rule Violation Plan, NYSE Amex 
Disciplinary Rule 476A, is based on both NYSE Rule 476A, which was 
originally adopted by the NYSE and approved by the Commission in 
1985, as well as legacy American Stock Exchange Rule 590, which was 
adopted by the Exchange's predecessor and approved by the Commission 
in 1989. See Securities Exchange Act Release No. 34-[sic]21688 
(January 25, 1985), 50 FR 5025-01 (February 5, 1985) (approving NYSE 
Rule 476A) and Securities Exchange Act Release No. 34-27543 
(December 15, 1989), 54 FR 53223 (December 27, 1989) (approving 
American Stock Exchange Rule 590).

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[[Page 39132]]

    Currently, when a DMM fails to meet the affirmative quote 
obligations set forth in Rule 104(a)(1)(A)-NYSE Amex Equities, the 
Exchange's only remedy is to bring a formal disciplinary proceeding 
pursuant to NYSE Amex Disciplinary Rule 476. This is the case whether 
or not the DMM has failed to meet its obligations once or many times 
and regardless of whether the DMM made a technical error or an 
intentional one.
    The Exchange believes that the current regulatory approach for 
dealing with DMM quoting obligations is too inflexible. The Exchange 
recognizes that DMMs may, for many reasons, fail to meet their 
affirmative quote obligations under Rule 104(a)(1)(A)-NYSE Amex 
Equities. In some circumstances, formal disciplinary measures in 
accordance with NYSE Amex Disciplinary Rule 476 are warranted. However, 
in other instances such a proceeding may be unwarranted, and the 
Exchange is of the view that the addition of Rule 104(a)(1)(A)-NYSE 
Amex Equities to the list of rule violations and fines under 
Disciplinary Rule 476A will provide a more flexible and appropriate 
tool to enforce potential failure by DMMs to adhere to the quoting 
requirements set forth in the Rule, while preserving the Exchange's 
discretion to seek formal discipline under the appropriate 
circumstances.
2. Statutory Basis
    The Exchange believes that the proposed rule changes are consistent 
with, and further the objectives of, Section 6(b)(5) of the Act,\12\ in 
that they are designed to prevent fraudulent and manipulative acts and 
practices, 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 changes also further the objectives 
of Section 6(b)(6), in that they provide for appropriate discipline for 
violations of principles of the Act, the rules and regulations 
thereunder, and Exchange rules and regulations.
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    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule changes will provide 
the Exchange with greater regulatory flexibility to enforce the DMM 
quoting requirements set forth in Rule 104(a)(1)(A)-NYSE Amex Equities 
in a more informal manner while also preserving the Exchange's 
discretion to seek formal discipline for more serious transgressions as 
warranted.

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 \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
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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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6).
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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 NYSEAmex-2009-47 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 NYSEAmex-2009-47. 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 will also be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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 
NYSEAmex-2009-47 and should be submitted on or before August 26, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-18668 Filed 8-4-09; 8:45 am]

BILLING CODE 8010-01-P