Document ID: SEC-2011-0667-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Stock Exchange, Inc.
Posted Date: 2011-05-12T04:00Z

[Federal Register Volume 76, Number 92 (Thursday, May 12, 2011)]
[Notices]
[Pages 27689-27691]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11673]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64425; File No. SR-NSX-2011-06]

Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change To Amend Its Rules To Extend a 
Pilot Program Regarding Trading Pauses in Individual Securities Due to 
Extraordinary Market Volatility to All NMS Stocks and To Make 
Conforming Changes to Market Maker Quoting Obligations

May 6, 2011.
    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 May 4, 2011, the National Stock Exchange, Inc. (``Exchange'' or 
``NSX'') filed with the Securities and Exchange Commission (``SEC'' or 
``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

    National Stock Exchange, Inc. (``NSX[supreg]'' or ``Exchange'') is 
proposing to amend Rule 11.20B to include additional securities in the 
pilot by which such rule operates and amend Rule 11.8 to simplify 
certain aspects of the text while also conforming certain of the 
percentages thereunder to the proposed changes to Rule 11.20B.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nsx.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 Exchange 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 these 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
    With this rule change, the Exchange is proposing to amend Rule 
11.20B to include additional securities in the pilot by which such rule 
operates and amend Rule 11.8 to simplify certain aspects of the text 
while also conforming certain of the percentages thereunder to the 
proposed changes to Rule 11.20B.
    NSX Rule 11.20B (Trading Pauses in Individual Securities Due to 
Extraordinary Market Volatility) was approved by the Securities and 
Exchange Commission (the ``Commission'') on June 10, 2010 on a pilot 
basis (``Pilot'') to end on December 10, 2010.\3\ The Pilot end date 
was subsequently extended until August 11, 2011 or to coincide, if 
applicable, with the earlier implementation date of the limit up/limit 
down mechanism.\4\ Similar rule changes were adopted by other markets 
in the national market system in a coordinated manner.
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    \3\ See Securities Exchange Act Release No. 62252 (June 10, 
2010), 75 FR 34186 (June 16, 2010) (SR-NSX-2010-05).
    \4\ See Securities Exchange Act Release No. 63512 (December 9, 
2010), 75 FR 78786 (December 16, 2010) (SR-NSX-2010-17); and 
Securities Exchange Act Release No. 64213 (April 6, 2011), 76 FR 
20409 (April 12, 2011) (SR-NSX-2011-04).
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    As the Exchange noted in its filing to adopt NSX Rule 11.20B, 
during the Pilot period, the Exchange, in conjunction with other 
markets in the national market system, would continue to assess whether 
additional securities need to be added and whether the parameters of 
the rule would need to be modified to accommodate trading 
characteristics of different securities. When initially adopted on June 
10, 2010, the pilot included all securities included within the S&P 
500[supreg] Index. On September 10, 2010 NSX Rule 11.20B was expanded 
to securities included in the Russell 1000[supreg] Index (``Russell 
1000'') and specified Exchange Traded Products (``ETPs''). \5\
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    \5\ See Securities Exchange Act Release No. 62884 (September 10, 
2010), 75 FR 56618 (September 16, 2010) (SR-NSX-2010-08).
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    The Exchange has continued to assess whether additional securities 
need to be added to the Pilot and whether the parameters of Rule 11.20B 
need to be modified to accommodate trading characteristics of different 
securities. In consultation with other markets and the staff of the 
Commission, the Exchange proposes to include all NMS stocks within the 
Pilot that are not already included therein. In addition, a wider 
Threshold Move percentage would apply to the newly added securities. 
Because the proposed additional stocks are those not currently included 
in the S&P 500 Index, Russell 1000 Index, or specified ETPs, and 
therefore are more likely to be less liquid securities or securities 
with lower trading volume, the Exchange believes that broader Threshold 
Move percentages would be appropriate. Similarly, because leveraged 
ETPs trade at a ratio against the associated index, a broader Threshold 
Move percentage would also be appropriate for leveraged ETPs. 
Securities priced below $1 are proposed to have a higher Threshold Move 
than higher priced securities because lower-priced securities may tend 
to be more volatile, and price movements of lower-priced securities 
equate to a higher percentage move than a similar price change for a 
higher-priced security.
    Accordingly, the Exchange proposes to expand the definition of the 
term ``Circuit Breaker Securities'' set forth in Commentary .05 to Rule 
11.20 to include all NMS stocks. The Exchange

[[Page 27690]]

proposes that the Threshold Move required to trigger a Trading Pause 
for the proposed new securities be 30% or more for such securities 
priced at $1 or higher and 50% or more for such securities priced less 
than $1.\6\ The Exchange believes that these percentages are 
commensurate with the characteristics shared by the proposed new 
securities within these price ranges and would promote the objectives 
of the Pilot to reduce the negative impacts of unanticipated price 
movements in a security. The Exchange proposes to include new 
subsections 11.20B(a)(1), (2) and (3) to reflect the distinction 
between the applicable Threshold Move percentages for current Pilot 
securities and the proposed new securities to be included within the 
Pilot.\7\ The Exchange is not proposing any other changes to the text 
of Rule 11.20B or the operation of the Pilot, and will continue to 
assess whether the parameters for invoking a Trading Pause continue to 
be appropriate and whether the parameters should be modified.
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    \6\ Under the proposed rule change, the price of a security 
would be based on the closing price on the previous trading day, or, 
if no closing price exists, the last sale reported to the 
Consolidated Tape on the previous trading day.
    \7\ The Exchange is not proposing a change to the Threshold Move 
percentage applicable to securities currently included within the 
current Pilot. However, the changes proposed herein requires that 
certain rule text pertaining to the Threshold Move for the existing 
Pilot securities be reorganized within Rule 11.20B(a).
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    The proposed changes to the Pilot, if approved, would require that 
the text of Rule 11.8(a)(1)(B)(iv) and (v), which pertains to the 
pricing obligations that Market Makers are required to adhere to, be 
amended to correct the cross-references therein to Rule 11.20B and the 
Threshold Move thereunder. Specifically, the Exchange proposes to 
remove any text from Rule 11.8(a)(1)(B)(iv) and (v) addressing NMS 
stocks that are not subject to the Pilot because no such securities 
would exist and such text would therefore be unnecessary. The Exchange 
also proposes to simplify Rule 11.8(a)(1)(B)(iv) and (v) by explicitly 
stating the percentages that are applicable thereunder and the times 
during the trading day when Rule 11.20B is not in effect. The Exchange 
notes that part of this proposed change would be substantive, in that 
the percentages under Rule 11.8(a)(1)(B)(iv) and (v) would decrease 
slightly for the proposed new securities priced at $1 or greater. The 
Exchange believes that this proposed substantive change would not have 
a significant impact on Market Maker pricing obligations and is 
reasonable because it would ensure that the designated quoting 
percentages in Rule 11.8(a)(1)(B) are within a narrower range than the 
percentages necessary to trigger a Trading Pause.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act,\8\ in general, and 
Section 6(b)(5) of the Act,\9\ in particular, 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, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system. The proposed rule 
change also is designed to support the principles of Section 11A(a)(1) 
\10\ of the Act in that it seeks to ensure fair competition among 
brokers and dealers and among exchange markets. The Exchange believes 
that the proposed rule meets these requirements because it expands the 
scope of the Pilot to cover all NMS stocks while adjusting the 
parameters of the rule for different securities in a manner that will 
promote uniformity across markets concerning decisions to pause trading 
in a security when there are significant price movements. Additionally, 
the proposed changes would ensure that the designated quoting 
percentages in Rule 11.8(a)(1)(B) are within a narrower range than the 
percentages necessary to trigger a Trading Pause.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 SR-NSX-2011-06 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-NSX-2011-06. 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 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of NSX. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that

[[Page 27691]]

you wish to make publicly available. All submissions should refer to 
File Number SR-NSX-2011-06 and should be submitted on or before June 2, 
2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11673 Filed 5-11-11; 8:45 am]
BILLING CODE 8011-01-P