Document ID: SEC-2012-1023-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-06-29T04:00Z

[Federal Register Volume 77, Number 126 (Friday, June 29, 2012)]
[Notices]
[Pages 38877-38879]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-15938]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67248; File No. SR-NYSEArca-2012-19]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, To Amend Commentary .01 to NYSE Arca Rule 6.35

 June 25, 2012.

I. Introduction

    On March 9, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
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 
allow certain cross trades effected on the trading floor to count 
toward a market maker's in-appointment trading requirement and to make 
certain non-substantive changes to its rules. The proposed rule change 
was published for comment in the Federal Register on March 28, 2012.\3\ 
The Commission received no comment letters on the proposed rule change. 
On

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May 8, 2012, the Commission extended the time period for Commission 
action to June 26, 2012.\4\ On June 13, 2012, the Exchange filed 
Amendment No. 1 to the proposed rule change.\5\ This order approves the 
proposed rule change, as modified by Amendment No. 1 thereto.
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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. 66642 (March 22, 
2012), 77 FR 18875 (``Notice'').
    \4\ See Securities Exchange Act Release No. 66945 (May 8, 2012), 
77 FR 28413 (May 14, 2012).
    \5\ In Amendment No. 1, the Exchange made a technical change to 
Exhibit 5 and provided additional justifications for the proposed 
rule change. Because Amendment No. 1 does not materially alter the 
substance of the proposed rule change, Amendment No. 1 is not 
subject to notice and comment.
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II. Description of the Proposal

    Under NYSE Arca Rule 6.35, a market maker is required to effect at 
least 75% of its trading activity (measured in terms of contract volume 
per quarter) in classes within its appointment. Commentary .01 to NYSE 
Arca Rule 6.35 clarifies that a market maker's trades effected on the 
trading floor to accommodate cross trades executed pursuant to NYSE 
Arca Rule 6.47 do not count for or against the market maker's 75% 
requirement, regardless of whether the trades are in issues within or 
without the market maker's appointment. The Exchange proposes to amend 
Commentary .01 to NYSE Arca Rule 6.35 to allow a market maker's trades 
effected on the trading floor to accommodate cross trades executed 
pursuant to NYSE Arca Rule 6.47 to count toward the market maker's 75% 
requirement, regardless of whether the trades are in issues within or 
without the market maker's appointment.
    Specifically, the Exchange asserts that the proposed rule change 
would not diminish a market maker's obligation when trading in open 
outcry or when trading electronically. The Exchange states that 
whenever market makers trade in classes of options outside of their 
appointment, they must fulfill the same obligations as they do in their 
appointed classes. The Exchange also states that, when trading in open 
outcry in option classes outside of their appointment, market makers 
may not engage in transactions that are disproportionate in relation to 
or in derogation of the performance of their obligations in their 
appointed classes. In addition, while all option classes listed on the 
Exchange have appointed market makers, not all of those appointed 
market makers are located on the trading floor, and therefore market 
makers may be called upon to provide liquidity via open outcry in 
issues outside of their appointment. According to the Exchange, the 
proposed rule change will thus help to encourage market maker 
participation in open outcry, which will promote liquidity and price 
improvement on the Exchange. The Exchange also notes that the proposed 
rule change is only applicable to trades where a market maker is 
trading with a floor broker representing agency orders, and not when a 
market maker is trading with another market maker. Finally, the 
Exchange states its belief that the proposed rule change could lead to 
a decrease in internalization of orders because of the potential for 
greater participation by competing market makers on open outcry trades.
    In addition, the Exchange proposes to make non-substantive changes 
to NYSE Arca Rules 6.35, 6.37, 6.84, and 10.12. Specifically, the 
Exchange proposes to replace the term ``Primary Appointment,'' which is 
not a defined term, with the word ``appointment'' as it is used 
elsewhere in NYSE Arca Rule 6.35.

III. Discussion and Commission Findings

    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.\6\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\7\ 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 and, 
in general, to protect investors and the public interest.
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    \6\ 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).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange proposes to allow a market maker's trades effected on 
the trading floor to accommodate cross trades executed pursuant to NYSE 
Arca Rule 6.47 to count toward the 75% in-appointment requirement, 
regardless of whether the trades are in issues within or without the 
market maker's appointment. The Commission believes that the proposal 
is consistent with the Act. According to the Exchange, while all option 
classes listed on the Exchange have appointed market makers, not all of 
those market makers are located on the trading floor. Thus, at times 
the Exchange may need to call upon a market maker to provide liquidity 
via open outcry in issues outside of the market maker's appointment. 
The Commission notes that the proposed rule change may provide an 
incentive for market makers to provide liquidity to the trading floor. 
Market makers may be encouraged to increase participation in open 
outcry trading, because the trades effected on the trading floor to 
accommodate cross trades executed pursuant to NYSE Arca Rule 6.47 will 
be counted towards a market maker's 75% in-appointment requirement. 
Greater market maker participation in cross trades executed pursuant to 
NYSE Arca Rule 6.47 may also present opportunities for price 
improvement on the trading floor.\8\
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    \8\ In this regard, the Exchange notes that the proposal is 
applicable to trades where a market maker is trading with a floor 
broker representing agency orders, and not when a market maker is 
trading with another market maker.
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    The Commission notes that whenever market makers enter the trading 
crowd for a class of options in which they do not hold an appointment 
in other than a floor brokerage capacity, they must fulfill the market 
maker obligations established by Exchange rules.\9\ In addition, when 
present anywhere on the options trading floor, with regard to all 
securities traded on the trading floor and not just those to which they 
are appointed, market makers are expected to undertake the obligations 
of a market maker in response to a demand from a trading official.\10\ 
Also, with respect to classes of option contracts outside of their 
appointment, market makers should not engage in transactions for an 
account in which they have an interest that are disproportionate in 
relation to, or in derogation of, the performance of their obligations 
with respect to those classes within their appointment.\11\
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    \9\ See NYSE Arca Rules 6.37(c) and 6.37A(d).
    \10\ See id.
    \11\ See id.
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    Further, the Commission believes that the proposal to replace the 
undefined term ``Primary Appointment'' with the term ``appointment'' is 
consistent with the Act because using consistent terminology should 
provide clarity and reduce confusion with respect to the application of 
Exchange rules regarding market makers.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NYSEArca-2012-19), as 
modified by Amendment No. 1 thereto, 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).

[[Page 38879]]

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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-15938 Filed 6-28-12; 8:45 am]
BILLING CODE 8011-01-P