Document ID: SEC-2009-0701-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving Proposed Rule Change To Adopt a Policy With Respect to the Treatment of Aberrant Trades
Posted Date: 2009-05-27T04:00Z

[Federal Register: May 27, 2009 (Volume 74, Number 100)]
[Notices]               
[Page 25291-25293]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27my09-97]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59937; File No. SR-NYSEArca-2009-24]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving 
Proposed Rule Change To Adopt a Policy With Respect to the Treatment of 
Aberrant Trades

May 18, 2009.

I. Introduction

    On March 18, 2009, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt a policy relating to its treatment of 
trade reports that it determines to be inconsistent with the prevailing 
market and to make such policy retroactive to January 1, 2008. The 
proposed rule change was published for comment in the Federal Register 
on April 6, 2009.\3\ The Commission received no comments on the 
proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 59650 (March 30, 
2009), 74 FR 15545.
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II. Description of the Proposal

    Trades in listed securities occasionally occur at prices that 
deviate from prevailing market prices and those trades sometimes 
establish a high, low or last sale price for a security that does not 
reflect the true market for the security. The Exchange seeks to address 
such instances of ``aberrant'' trades by adopting a policy that is 
substantially similar to a policy of the New York Stock Exchange 
(``NYSE'').\4\ On February 9, 2009, the Exchange also filed a proposed 
rule change, which it designated as eligible for immediate 
effectiveness pursuant to Rule 19b-4(f)(6) under the Act,\5\ to adopt a 
policy relating to the Exchange's treatment of trade reports that it 
determines to be inconsistent with the prevailing market.\6\ The policy 
proposed in the instant rule change is identical to the policy set 
forth in Release No. 34-59453, except that the instant proposal

[[Page 25292]]

is retroactive to January 1, 2008. This retroactive application is 
similar to the retroactivity provision in the NYSE policy set forth in 
Release No. 34-59064.
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    \4\ See Securities Exchange Act Release No. 59064 (December 5, 
2008), 73 FR 76082 (December 15, 2008) (order approving SR-NYSE-
2008-91) (``Release No. 34-59064'').
    \5\ 17 CFR 240.19b-4(f)(6).
    \6\ See Securities Exchange Act Release No. 59453 (February 25, 
2009), 74 FR 9463 (March 4, 2009) (SR-NYSEArca-2009-09) (``Release 
No. 34-59453'').
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    The Consolidated Tape Association (``CTA'') offers each Participant 
in the CTA Plan the discretion to append an indicator (an ``Aberrant 
Report Indicator'') to a trade report to indicate that the market 
believes that the trade price in a trade executed on that market does 
not accurately reflect the prevailing market for the security. The CTA 
recommends that data recipients should exclude the price of any trade 
to which the Aberrant Report Indicator has been appended from any 
calculation of the high, low and last sale prices for the security.
    During the course of surveillance by the Exchange or as a result of 
notification by another market, listed company or market participant, 
the Exchange may become aware of trade prices that do not accurately 
reflect the prevailing market for a security. In such a case, the 
Exchange proposes to adopt as policies that it:
    i. May determine to append an Aberrant Report Indicator to any 
trade report with respect to any trade executed on the Exchange that 
the Exchange determines to be inconsistent with the prevailing market; 
and
    ii. Shall discourage vendors and other data recipients from using 
prices to which the Exchange has appended the Aberrant Report Indicator 
in any calculation of the high, low or last sale price of a security.
    The Exchange believes that retroactive application of its aberrant 
trade policy is warranted because of the significant market volatility 
and trade reporting issues that all market centers experienced during 
2008. Therefore, the Exchange believes that it should be permitted to 
act retroactively to append the Aberrant Report Indicator to trades 
that do not accurately reflect the prevailing market for a security 
commencing as of January 1, 2008.
    The Exchange will urge vendors to disclose the exclusion from high, 
low or last sale price data of any aberrant trades excluded from high, 
low or last sale price information they disseminate and to provide to 
data users an explanation of the parameters used in the Exchange's 
aberrant trade policy. Upon initial adoption of the Aberrant Report 
Indicator, the Exchange will also contact all of its listed companies 
to explain the aberrant trade policy and will notify users of the 
information that these are still valid trades. The Exchange will inform 
the affected listed company each time the Exchange or another market 
appends the Aberrant Report Indicator to a trade in an NYSE Arca listed 
stock and will remind the users of the information that these are still 
valid trades in that they were executed and not unwound as in the case 
of a clearly erroneous trade.
    While the CTA disseminates its own calculations of high, low and 
last sale prices, vendors and other data recipients--and not the 
Exchange--frequently determine their own methodology by which they wish 
to calculate high, low and last sale prices. Therefore, the Exchange 
shall endeavor to explain to those vendors and other data recipients 
the deleterious effects that can result from including in the 
calculations a trade to which the Aberrant Report Indicator has been 
appended.
    In making the determination to append the Aberrant Report 
Indicator, the Exchange shall consider all factors related to a trade, 
including, but not limited to, the following:
     Material news released for the security;
     Suspicious trading activity;
     System malfunctions or disruptions;
     Locked or crossed markets;
     A recent trading halt or resumption of trading in the 
security;
     Whether the security is in its initial public offering;
     Volume and volatility for the security;
     Whether the trade price represents a 52-week high or low 
for the security;
     Whether the trade price deviates significantly from recent 
trading patterns in the security;
     Whether the trade price reflects a stock-split, 
reorganization or other corporate action;
     The validity of consolidated tape trades and quotes in 
comparison to national best bids and offers; and
     The general volatility of market conditions.
    In addition, the Exchange proposes that its policy shall be to 
consult with the listing exchange (if the Exchange is not the listing 
exchange) and with other markets (in the case of executions that take 
place across multiple markets) and to seek a consensus as to whether 
the trade price is consistent with the prevailing market for the 
security.
    In determining whether trade prices are inconsistent with the 
prevailing market, the Exchange proposes that its policy shall be to 
follow the following general guidelines: The Exchange will determine 
whether a trade price does not reflect the prevailing market for a 
security if the trade occurs during regular trading hours (i.e., 9:30 
a.m. to 4 p.m.) and occurs at a price that deviates from the 
``Reference Price'' by an amount that meets or exceeds the following 
thresholds:

------------------------------------------------------------------------
                                                              Numerical
                        Trade price                           threshold
                                                              (percent)
------------------------------------------------------------------------
Between $0 and $15.00......................................            7
Between $15.01 and $50.00..................................            5
In excess of $50.00........................................            3
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    The ``Reference Price'' refers to (a) if the primary market for the 
security is open at the time of the trade, the national best bid or 
offer for the security, or (b) if the primary market for the security 
is not open at the time of the trade, the first executable quote or 
print for the security on the primary market after execution of the 
trade in question. However, if the circumstances suggest that a 
different Reference Price would be more appropriate, the Exchange will 
use the different Reference Price. For instance, if the national best 
bid and offer for the security are so wide apart as to fail to reflect 
the market for the security, the Exchange might use as the Reference 
Price a trade price or best bid or offer that was available prior to 
the trade in question.
    If the Exchange determines that a trade price does not reflect the 
prevailing market for a security and the trade represented the last 
sale of the security on the Exchange during a trading session, the 
Exchange may also determine to remove that trade's designation as the 
last sale. The Exchange may do so either on the day of the trade or at 
a later date, so as to provide reasonable time for the Exchange to 
conduct due diligence regarding the trade, including the consideration 
of input from markets and other market participants.
    The Exchange advises that it proposes to use the Aberrant Report 
Indicator in accordance with the guidelines set forth above and that it 
may apply the Aberrant Report Indicator on a retroactive basis 
commencing January 1, 2008.

III. Discussion

    After careful review, the Commission finds 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 
and, in particular, with Section 6(b) of the Act \7\ and the rules and 
regulations thereunder. Specifically, the Commission finds that the 
proposed rule change is consistent

[[Page 25293]]

with Section 6(b)(5) of the Act \8\ which requires, among other things, 
that the rules of a national securities exchange be 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, 
to protect investors and the public interest, and are not designed to 
permit unfair discrimination between customers, issuers, brokers or 
dealers.\9\
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving this proposed rule change, 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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    The Commission believes that the Exchange's proposal to append an 
Aberrant Report Indicator to certain trade reports is a reasonable 
means to alert investors and others that the Exchange believes that the 
trade price for a trade executed in its market does not accurately 
reflect the prevailing market for the security. In addition, the 
Commission notes that the Exchange will use objective numerical 
thresholds in determining whether a trade report is eligible to have an 
Aberrant Trade Indicator appended to it. The Commission further notes 
that the Exchange's appending the Aberrant Trade Indicator to a trade 
report has no effect on the validity of the underlying trade. The 
Commission previously found a similar proposal by the NYSE to be 
consistent with the Act.\10\ Finally, the Commission notes that the 
retroactive application of this proposal to January 1, 2008 is similar 
to the retroactive period approved for the NYSE.\11\
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    \10\ See supra note 4.
    \11\ Id.
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    For the reasons set forth above, the Commission finds that the 
proposed rule change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NYSEArca-2009-24) be, and 
hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-12215 Filed 5-26-09; 8:45 am]

BILLING CODE 8010-01-P