Document ID: SEC-2013-1275-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2013-07-15T04:00Z

[Federal Register Volume 78, Number 135 (Monday, July 15, 2013)]
[Notices]
[Pages 42135-42138]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16820]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69952; File No. SR-NYSEMKT-2013-61]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending NYSE MKT Rules 
504 and 509--Equities With Respect to DMM Quoting Requirements 
Applicable to Nasdaq Stock Market Securities Traded on the Exchange 
Pursuant to A Grant of Unlisted Trading Privileges

July 9, 2013.
    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 June 26, 2013, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'') 
filed with the Securities and Exchange Commission (``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 MKT Rules 504 and 509--Equities 
with respect to DMM quoting requirements applicable to Nasdaq Stock 
Market (``Nasdaq'') securities traded on the Exchange pursuant to a 
grant of unlisted trading privileges. 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, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend NYSE MKT Rules 504 and 509--Equities 
with respect to DMM quoting requirements applicable to Nasdaq 
securities traded on the Exchange pursuant to a grant of unlisted 
trading privileges. NYSE MKT Rules 500-525--Equities, as a pilot 
program, govern the trading of any Nasdaq-listed security on the 
Exchange pursuant to unlisted trading privileges (``UTP Pilot 
Program'').\3\ The UTP Pilot Program includes any security listed on 
Nasdaq that (i) is designated as an ``eligible security'' under the 
Joint Self-Regulatory Organization Plan Governing the Collection, 
Consolidation and Dissemination of Quotation and Transaction 
Information for Nasdaq-Listed Securities Traded on Exchanges on an 
Unlisted Trading Privilege Basis, as amended (``UTP Plan''),\4\ and 
(ii) has been admitted to dealings on the Exchange pursuant to a grant 
of unlisted trading privileges in accordance with Section 12(f) of the 
Act \5\ (collectively, ``Nasdaq Securities'').\6\
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    \3\ The UTP Pilot Program is currently scheduled to expire on 
the earlier of Commission approval to make such pilot permanent or 
January 31, 2014. See Securities Exchange Act Release No. 69814 
(June 20, 2013) (SR-NYSEMKT-2013-53) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change Amending NYSE MKT Rule 500--
Equities to Extend the Operation of the Pilot Program that Allows 
Nasdaq Stock Market (``Nasdaq'') Securities to be Traded on the 
Exchange Pursuant to a Grant of Unlisted Trading Privileges). See 
also Securities Exchange Act Release No. 62479 (July 9, 2010), 75 FR 
41264 (July 15, 2010) (SR-NYSEAmex-2010-31). See also Securities 
Exchange Act Release Nos. 62857 (September 7, 2010), 75 FR 55837 
(September 14, 2010) (SR-NYSEAmex-2010-89); 63601 (December 22, 
2010), 75 FR 82117 (December 29, 2010) (SR-NYSEAmex-2010-124); 64746 
(June 24, 2011), 76 FR 38446 (June 30, 2011) (SR-NYSEAmex-2011-45); 
66040 (December 23, 2011), 76 FR 82324 (December 30, 2011) (SR-
NYSEAmex-2011-104); 67497 (July 25, 2012), 77 FR 45404 (July 31, 
2012) (SR-NYSEMKT-2012-25); and 68561 (January 2, 2013), 78 FR 1290 
(January 8, 2013) (SR-NYSEMKT-2012-86).
    \4\ See Securities Exchange Act Release No. 58863 (October 27, 
2008), 73 FR 65417 (November 3, 2008) (File No. S7-24-89). The 
Exchange's predecessor, the American Stock Exchange LLC, joined the 
UTP Plan in 2001. See Securities Exchange Act Release No. 55647 
(April 19, 2007), 72 FR 20891 (April 26, 2007) (S7-24-89). In March 
2009, the Exchange changed its name to NYSE Amex LLC, and in May 
2012, the Exchange subsequently changed its name to NYSE MKT LLC. 
See Securities Exchange Act Release Nos. 59575 (March 13, 2009), 74 
FR 11803 (March 19, 2009) (SR-NYSEALTR-2009-24) and 67037 (May 21, 
2012), 77 FR 31415 (May 25, 2012 (SR-NYSE Amex-2012-32),
    \5\ 15 U.S.C. 781.
    \6\ ``Nasdaq Securities'' is included within the definition of 
``security'' as that term is used in the NYSE MKT Rules--Equities. 
See NYSE MKT Rule 3--Equities. In accordance with this definition, 
Nasdaq Securities are admitted to dealings on the Exchange on an 
``issued,'' ``when issued,'' or ``when distributed'' basis. See NYSE 
MKT Rule 501--Equities.
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    Designated Market Maker units (``DMM units'') \7\ registered in one 
or more Nasdaq Securities must comply with all ``DMM rules,'' as 
defined in NYSE MKT Rule 98--Equities,\8\ and the

[[Page 42136]]

obligations and benefits of DMMs in Nasdaq Securities closely track 
those applicable to DMMs in Exchange-listed equities, subject to 
certain modifications enumerated in NYSE MKT Rule 509--Equities. As is 
the case with DMMs in Exchange-listed equities, a DMM unit in Nasdaq 
Securities has an affirmative obligation to engage in a course of 
dealings for its own account to assist in the maintenance of a fair and 
orderly market insofar as reasonably practicable, including maintaining 
price continuity with reasonable depth and quoting and trading with 
reference to Exchange-provided Depth Guidelines.\9\ In addition, a DMM 
in Nasdaq Securities is required to facilitate trading when a ``gap'' 
quote procedure is being used and when a manual block trade is being 
executed.\10\
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    \7\ See NYSE MKT Rule 103--Equities--Registration and Capital 
Requirements of DMMs and DMM Units. ``DMM unit'' means any member 
organization, aggregation unit within a member organization, or 
division or department within an integrated proprietary aggregation 
unit of a member organization that (i) has been approved by NYSE 
Regulation pursuant to section (c) of this Rule 103, (ii) is 
eligible for allocations under NYSE MKT Rule 103B--Equities as a DMM 
unit in a security listed or traded on the Exchange, and (iii) has 
met all registration and qualification requirements for DMM units 
assigned to such unit. See NYSE MKT Rule 98(b)(2)--Equities.
    \8\ ``DMM rules'' means any rules that govern DMM conduct or 
trading. See NYSE MKT Rule 98(b)(5)--Equities.
    \9\ See NYSE MKT Rule 104(a), (f)(ii) and (f)(iii)--Equities.
    \10\ See NYSE MKT Rule 104(a)(5)--Equities.
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    The obligations of DMM units registered to trade Nasdaq Securities 
are, however, slightly different from those that apply to DMMs in 
Exchange-listed securities. First, the rules that apply to trading in 
Nasdaq Securities on the Exchange do not provide for opening and 
closing auctions in Nasdaq Securities, so DMMs in Nasdaq Securities are 
not responsible for facilitating openings and closings, as DMMs in 
listed equities are. Second, NYSE MKT Rule 509(a)(1)--Equities states 
that in lieu of NYSE MKT Rule 104(a)(1)(A)--Equities, with respect to 
maintaining a continuous two-sided quote with reasonable size, a DMM 
unit registered in Nasdaq Securities must maintain a quote at the 
National Best Bid or Offer (``inside'') in each assigned Nasdaq 
Security an average of at least 10% of the time during the regular 
business hours of the Exchange for each calendar month for Nasdaq 
Securities with a consolidated average daily volume (``CADV'') of less 
than one million shares per calendar month and an average of at least 
5% of the time during the regular business hours of the Exchange for 
each calendar month for Nasdaq Securities with a CADV equal to or 
greater than one million shares per calendar month. As such, a DMM in a 
Nasdaq Security is required to meet these quoting requirements on a 
stock-by-stock basis.
    The Exchange proposes to amend NYSE MKT Rule 509(a)(1)--Equities to 
require that DMM units maintain a bid or offer at the NBBO for a 
certain percentage of the trading day on a portfolio basis. The 
percentage required would depend on whether the stock is a ``More 
Active Security'' or ``Less Active Security'' security, as defined in 
Rule 103B(II)(B) and (C)--Equities. As proposed, a DMM unit would be 
required to maintain a bid or offer at the NBBO for at least 15% of the 
trading day for Nasdaq Securities in which the DMM unit is registered 
with a CADV of less than one million shares (i.e., Less Active 
Securities), and at least 10% of the trading day for Nasdaq Securities 
in which the DMM unit is registered with a CADV equal to or greater 
than one million shares (i.e., More Active Securities).
    The requirements of proposed NYSE MKT Rule 509(a)(1)(A) are modeled 
on the DMM unit quoting requirements in New York Stock Exchange LLC 
(``NYSE'') Rule 104(a)(1)(A), which requires that DMM units maintain a 
bid or offer at the NBBO for a certain percentage of the trading day on 
a portfolio basis. Specifically, NYSE Rule 104(a)(1)(A) requires that 
DMM units maintain a bid or offer at the NBBO for at least 15% of the 
trading day for NYSE-listed securities in which the DMM unit is 
registered with a CADV of less than one million shares, and at least 
10% for securities for NYSE-listed securities in which the DMM unit is 
registered with a CADV equal to or greater than one million shares.
    The Exchange notes that the NYSE requirement for NYSE-listed 
securities is greater than the DMM unit quoting requirement for 
Exchange-listed securities. NYSE MKT Rule 104(a)(1)(A)--Equities 
requires that DMM units maintain a bid or offer at the NBBO for a 
certain percentage of the trading day for all Exchange-listed 
securities in which the DMM unit is registered, specifically, at least 
10% of the trading day for the Exchange-listed securities in which the 
DMM unit is registered with a CADV of less than one million shares, and 
at least 5% for securities in which the DMM unit is registered with a 
CADV equal to or greater than one million shares.
    Accordingly, under the proposed change, DMM units would be required 
to meet a quoting requirement for Nasdaq Securities that is greater 
than the quoting requirement for Exchange-listed securities.
    The Exchange believes the proposed change is appropriate in light 
of the low volume of trading of Nasdaq Securities occurring on the 
Exchange. The Exchange believes that basing the quoting requirements on 
quoting in the portfolio of securities in which the DMM unit is 
registered rather than on a security-by security basis will encourage 
quoting activity in a broader number of Nasdaq Securities, including 
less active securities. Because, in part, of the difficulty DMM units 
have in meeting the current stock-by-stock quoting obligation, DMM 
units have declined to participate in the UTP Pilot Program, and 
trading in Nasdaq Securities on NYSE MKT is minimal, with only 135 of 
the approximately 2,600 Nasdaq Securities trading at the Exchange as of 
May 21, 2013. Specifically, meeting the security-by-security quoting 
requirement on a daily basis has been sufficiently difficult to 
discourage DMM units from participating in the UTP program. The 
Exchange believes that the portfolio approach will give DMM units more 
flexibility in meeting the quoting requirements, thus encouraging DMM 
participation in the UTP Pilot Program. The Exchange notes that while 
there may be more or less quoting in individual securities in the 
portfolio in any particular trading session, as with the portfolio 
quoting requirement for NYSE and the Exchange, the Exchange believes 
that over time, quoting across all of the assigned Nasdaq Securities 
will even out as the requirement to meet the portfolio requirement 
would discourage an imbalance in quoting any one security. The Exchange 
therefore seeks to adopt an obligation that is both meaningful and 
attainable to encourage increased participation by DMM units in the UTP 
Pilot Program, which would result in more liquidity providing and 
quoting in a higher number of Nasdaq Securities trading on the 
Exchange.
    The Exchange also notes that the proposed quoting requirement is 
higher than the quoting requirement applicable to Exchange-listed 
securities, and therefore the obligation associated with the quoting 
requirement for DMMs in Nasdaq Securities would still be greater than 
the similar obligation for Exchange-listed securities. The Exchange 
believes that this is appropriate given the Commission's prior finding 
that the obligations and benefits for DMMs that trade Nasdaq Securities 
differ from the obligations and benefits for DMMs that trade Exchange-
listed securities.\11\ The Exchange believes that the proposed change 
strikes the appropriate balance between setting a meaningful obligation 
to the market that is tailored to the volume levels of Nasdaq 
Securities that trade in the UTP Pilot Program while at the same time 
recognizing that the obligations for DMM units must be meaningful as 
compared to the benefits they receive.
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    \11\ See Securities Exchange Act Release Nos. 62479 (July 9, 
2010), 75 FR 41264 (July 15, 2010) (SR-NYSEAmex-2010-31).

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[[Page 42137]]

    Finally, the Exchange notes that using a similar structure for the 
obligations for listed securities and for Nasdaq Securities would, for 
the same DMM unit eliminate in large part the additional responsibility 
and burden for DMM units to design, implement and maintain different 
technology approaches and programming for their trading and internal 
compliance applications relating to Nasdaq Securities only.
    The Exchange also proposes to delete from NYSE MKT Rule 
504(b)(1)(A)--Equities, Nasdaq Security Assignment, the text setting 
out the DMM quoting requirements of NYSE MKT Rule 509--Equities and to 
replace the repetition of the text with a cross-reference to NYSE MKT 
Rule 509--Equities.
    The Exchange proposes to implement the rule changes effective [sic] 
August 1, 2013.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange. In particular, 
the Exchange believes that its proposal is consistent with: (i) Section 
6(b) of the Act,\12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\13\ in particular, in that it is 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; (ii) 
Section 11A(a)(1) of the Act,\14\ in that it seeks to ensure the 
economically efficient execution of securities transactions and fair 
competition among brokers and dealers and among exchange markets; and 
(iii) Section 12(f) of the Act,\15\ which governs the trading of 
securities pursuant to UTP consistent with the maintenance of fair and 
orderly markets, the protection of investors and the public interest, 
and the impact of extending the existing markets for such securities.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ 15 U.S.C. 78k-1(a)(1).
    \15\ 15 U.S.C. 78l(f).
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    Specifically, the Exchange believes that the proposed change would 
remove impediments to and perfect the mechanism of a free and open 
market and national market system because it would remove an obligation 
that is virtually impossible for DMM units to meet and replace it with 
a quoting obligation better tailored to the scope of the UTP Pilot 
Program and how Nasdaq Securities trade at the Exchange. The Exchange 
believes that the proposed change would promote fair competition among 
broker dealers by encouraging more DMM units to quote Nasdaq 
Securities, thereby increasing the available liquidity in such 
securities, which would benefit investors and the public.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition that are not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed change is pro-competitive because it would remove an 
overly burdensome obligation that places Exchange DMM units at a 
disadvantage vis-[agrave]-vis market makers on other markets because 
the Exchange DMM units are unable to meet the quoting obligations, and 
therefore do not trade Nasdaq Securities at the Exchange. The Exchange 
further believes that the proposed change will foster competition 
because it will increase the number of DMM units that would be willing 
to be registered in Nasdaq Securities, thereby increasing the potential 
pool of liquidity in Nasdaq Securities in the market.

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 foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not become operative for 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-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.
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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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \18\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \18\ 15 U.S.C. 78s(b)(2)(B).
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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-2013-61 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-2013-61. 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

[[Page 42138]]

business days between the hours of 10:00 a.m. and 3:00 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-NYSEMKT-2013-61 and should be submitted on or before 
August 5, 2013.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-16820 Filed 7-12-13; 8:45 am]
BILLING CODE 8011-01-P