Document ID: SEC-2012-2037-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2012-12-12T05:00Z

[Federal Register Volume 77, Number 239 (Wednesday, December 12, 2012)]
[Notices]
[Pages 74034-74037]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29966]

[[Page 74034]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68377; File No. SR-NYSE-2012-72]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Modifying the Manner in Which New York Stock Exchange LLC Calculates 
Certain Volume, Liquidity and Quoting Thresholds Applicable to Billing 
on the Exchange in Relation to a Systems Issue Experienced by the 
Exchange on November 12, 2012

December 6, 2012.
    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 November 30, 2012, New York Stock Exchange LLC (the 
``Exchange'' or ``NYSE'') 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 modify the manner in which it calculates 
certain volume, liquidity and quoting thresholds applicable to billing 
on the Exchange in relation to a systems issue experienced by the 
Exchange on November 12, 2012. 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 is proposing to modify the manner in which it 
calculates certain volume, liquidity and quoting thresholds applicable 
to billing on the Exchange in relation to a systems issue experienced 
by the Exchange on November 12, 2012 shortly after the opening of 
trading, which affected one of its matching engines handling trading 
for 216 securities (the ``systems issue'').\3\ The Exchange halted 
trading in these 216 symbols and did not resume trading in the 216 
affected symbols on November 12, 2012.
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    \3\ The systems issue was limited to the Exchange's market and 
did not impact the markets of its affiliates NYSE MKT LLC and NYSE 
Arca, Inc.
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    The halting of trading in the 216 securities affected by the 
systems issue resulted in a significant decrease in trading volume on 
the Exchange on November 12, 2012, not only for the 216 securities 
impacted by the systems issue, but also across a majority of the 
securities trading on the Exchange. It also affected the ability of 
member organizations on the Exchange, including Designated Market 
Makers (``DMMs''), Supplemental Liquidity Providers (``SLPs'') and 
Retail Liquidity Providers (``RLPs''), to demonstrate typical trading, 
quoting and liquidity in such securities.
    As provided in the Exchange's Price List, several of the Exchange's 
transaction fees and credits are based on trading, quoting and 
liquidity thresholds that member organizations must satisfy in order to 
qualify for the particular rates. The Exchange believes that the 
halting of trading that resulted from the systems issue may affect the 
ability of member organizations to meet certain of these thresholds 
during November 2012.\4\ Accordingly, the Exchange proposes to exclude 
November 12, 2012 from such calculations, in order to reasonably ensure 
that a member organization that would otherwise qualify for a 
particular threshold during November 2012, and the corresponding 
transaction rate, would not be negatively impacted by the systems issue 
and the resulting halting of the securities.
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    \4\ The Exchange notes that it does not perform the calculations 
necessary to determine whether these thresholds have been met until 
after the particular billing month has ended.
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    First, for all securities traded on the Exchange, the Exchange 
proposes to exclude November 12, 2012 for purposes of determining 
transaction fees and credits that are based on average daily volume 
(``ADV'') during the billing month, either directly or as a percentage 
of consolidated average daily volume in NYSE-listed securities (``NYSE 
CADV'') or of September 2012 Adding ADV (``SLP Baseline ADV''). If the 
Exchange did not exclude November 12, 2012 when calculating ADV for 
November, as a result of the decreased trading volume on November 12, 
2012, the numerator for the calculation (e.g., trading volume) would be 
correspondingly lower, but the denominator for the threshold 
calculations (e.g., the number of trading days) would not be decreased. 
The impacted billing rates in the Price List are as follows:
     The threshold for market at-the-close (``MOC'') and limit 
at-the-close (``LOC'') orders of an ADV of 0.375% of NYSE CADV that 
relates to the fee of $0.00055 per share;
     The thresholds of ADV of 1.5%, 0.375%, 0.8%, 0.12%, 0.15%, 
0.5%, 0.12% and 15% of NYSE CADV that relate to the credit of $0.0018 
per share;
     The thresholds of ADV of 0.20% and 0.10% of NYSE CADV that 
relate to the credit of $0.0017 per share;
     The threshold of ADV of 0.22% of NYSE CADV that relates to 
the SLP credit of $0.0023 (or $0.0018 if a Non-Displayed Reserve Order) 
per share;
     The thresholds of ADV of 0.22% of NYSE CADV and 0.18% of 
SLP Baseline ADV, as well as the minimum provide ADV of 12 million 
shares that relate to the SLP credit of $0.0025 per share;
     The threshold of ADV of 0.22% of NYSE CADV that relates to 
the SLP credit of $0.0005 per share; and
     The 500,000-share ADV threshold that relates to the non-
Retail Liquidity Provider (``RLP'') member organization rate of $0.00.
    Second, for the 216 securities impacted by the systems issue, the 
Exchange proposes to exclude November 12, 2012 for purposes of 
determining transaction fees and credits that are based on quoting and/
or liquidity levels of DMMs, SLPs and RLPs. The calculations of such 
quoting and liquidity levels include the amount of time that the 
relevant DMM, SLP or RLP quoted at the National Best Bid or Offer 
(``NBBO'').\5\ If the Exchange did not exclude November 12, 2012 when 
calculating the quoting or liquidity levels for November, as a result 
of the decreased trading volume on November 12, 2012, the numerator for 
the calculation (e.g., time during which the DMM, SLP or RLP quoted at 
the NBBO) would be lower, but the denominator (e.g., total time that 
the U.S. equity

[[Page 74035]]

markets quote during regular trading hours) would not be decreased. The 
impacted billing rates in the Price List are as follows:
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    \5\ See Rules 107B(g) and 107C(f).
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     For DMMs, (1) the 10% ``More Active Securities Quoting 
Requirement'' that relates to the rebates of $0.0025, $0.0026, $0.0030, 
$0.0029 and $0.0015, respectively, per share; and (2) the 15% ``Less 
Active Securities Quoting Requirement'' that relates to the rebates of 
$0.0035 and $0.0015, respectively, per share;
     For SLPs, the 10% average or more quoting requirement in 
an assigned security pursuant to Rule 107B that relates to the credits 
of $0.0023 (or $0.0018 if a Non-Displayed Reserve Order) and $0.0025, 
respectively, per share; and
     For RLPs, the applicable percentage requirement of Rule 
107C that relates to the fees of $0.00 and $0.0003, respectively, per 
share.
    The Exchange notes that the proposed exclusions would be similar to 
the current provision in the Price List whereby, for purposes of 
transaction fees and SLP credits, ADV calculations exclude early 
closing days.\6\ Generally, this applies to certain days before or 
after a holiday observed by the Exchange.\7\
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    \6\ See footnote 4 in the Price List.
    \7\ For example, the Exchange is closed on Thanksgiving Day and 
closes early on the Friday immediately following Thanksgiving Day 
(e.g., Friday, November 23, 2012).
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    Finally, the Exchange does not propose to exclude November 12, 2012 
for purposes of the DMM thresholds in the Price List that are based 
solely on consolidated ADV (``CADV''), quoted size or intraday adding 
liquidity.\8\ The thresholds that are based solely on CADV consider 
volume across all markets, not only the Exchange's, and, unlike the 
transaction fees and credits discussed above that are based on ADV 
during the billing month as a percentage of NYSE CADV or SLP Baseline 
ADV, the DMM thresholds based solely on CADV do not take CADV as a 
percentage of another metric. Therefore the systems issue and the 
resulting halting of securities on the Exchange would not necessarily 
have had a significant impact on CADV for these securities. This is 
also true for the thresholds that are based on quoted size or intraday 
adding liquidity because, while the numerator of the related threshold 
calculation (e.g., the DMM's quoted size or DMM intraday adding 
liquidity) may have decreased because of the systems issue and the 
resulting trading halts, so too would the denominator of the related 
threshold calculation (e.g., the NYSE quoted size or NYSE total 
intraday adding liquidity). These billing rates in the Price List, for 
which the Exchange is not excluding activity on November 12, 2012 for 
purposes of determining transaction fees and credits, are as follows:
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    \8\ CADV includes all volume reported to the Consolidated Tape 
Association Plan for Tapes A, B and C securities.
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     The ADV threshold of 1,000,000 shares or more that 
determines ``More Active Securities'' and that relates to the rebates 
of $0.0025, $0.0026, $0.0030, $0.0029, $0.0015 and $0.0004, 
respectively, per share;
     The ADV threshold of less than 1,000,000 shares that 
determines ``Less Active Securities'' and that relates to the rebates 
of $0.0035, $0.0015 and $0.0004, respectively, per share;
     The ``More Active Securities Quoted Size Ratio 
Requirement'' that relates to the rebates of $0.0026, $0.0030 and 
$0.0029, respectively, per share; \9\ and
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    \9\ See footnote 7 in the Price List.
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     The 15% and 30% thresholds of NYSE total intraday adding 
liquidity in each security that relate to the rebates of $0.0026, 
$0.0030 and $0.0029 per share.
    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues surrounding billing for activity 
on the Exchange and the Exchange is not aware of any negative impact on 
member organizations that would result from the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed change is consistent with 
Section 6(b) of the Securities Exchange Act of 1934 (the ``Act''),\10\ 
in general, and furthers the objectives of Section 6(b)(4) of the 
Act,\11\ in particular, because it provides for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members, issuers and other persons using its facilities and does not 
unfairly discriminate between customers, issuers, brokers or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
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    Specifically, the Exchange believes that excluding November 12, 
2012 for all securities traded on the Exchange for purposes of 
determining transaction fees and credits that are based on ADV during 
the billing month, either directly or as a percentage of NYSE CADV or 
of SLP Baseline ADV, is reasonable because the halting of trading in 
the 216 securities impacted by the systems issue resulted in a 
significant decrease in trading volume on the Exchange on November 12, 
2012, not only for the 216 securities impacted by the systems issue, 
but also across a majority of the securities trading on the Exchange. 
This is reasonable because, without this exclusion, as a result of the 
decreased trading volume on November 12, 2012, the numerator for the 
calculations of ADV (e.g., trading volume) would be correspondingly 
lower, but the denominator for the calculations (e.g., the number of 
trading days) would not be decreased. The Exchange believes that 
excluding activity on November 12, 2012 for purposes of determining 
transaction fees and credits that are based on ADV during the billing 
month is equitable and not unfairly discriminatory because, in addition 
to applying equally to all market participants on the Exchange, it will 
apply to all securities traded on the Exchange, including the 216 
securities impacted by the systems issue. In this regard, excluding 
November 12, 2012 from such ADV calculations is equitable and not 
unfairly discriminatory because the exclusion would reasonably ensure 
that a member organization that would otherwise qualify for a 
particular threshold for November 2012, and the corresponding 
transaction rate, would not be negatively impacted by the systems issue 
and the resulting halting of securities. As noted above, the impact of 
the systems issue on trading volume on the Exchange was not isolated to 
the 216 securities, but also affected a majority of the securities 
trading on the Exchange.
    The Exchange also believes that excluding November 12, 2012 for the 
216 securities impacted by the systems issue for purposes of 
determining transaction fees and credits that are based on quoting and/
or liquidity levels of DMMs, SLPs and RLPs is reasonable because, 
unlike general order flow that is sent to the Exchange, DMM, SLP and 
RLP activity is typically specific to particular securities. The 
calculations of such quoting and liquidity levels include the amount of 
time that the relevant DMM, SLP or RLP quoted at the NBBO. In this 
regard, excluding November 12, 2012 from these quoting and liquidity 
calculations is reasonable because, without this exclusion, as a result 
of the decreased trading volume on November 12, 2012, the numerator for 
the calculations (e.g., time during which the DMM, SLP or RLP quoted at 
the NBBO) would be lower, but the denominator for the threshold 
calculations (e.g., total time that the U.S. equity markets quote 
during regular trading hours) would not be decreased. As a result, 
without this exclusion, a member organization that would

[[Page 74036]]

otherwise qualify for a particular threshold for November 2012, and the 
corresponding transaction rate may be negatively impacted by the 
systems issue. This is equitable and not unfairly discriminatory 
because DMMs, SLPs and RLPs have specific performance metrics that must 
be satisfied for assigned securities in order to qualify for the 
particular rates in the Price List.
    Finally, the Exchange believes that not excluding activity on 
November 12, 2012 for purposes of determining transaction fees and 
credits related to the DMM thresholds in the Price List that are based 
solely on CADV and quoted size is reasonable. This is because the 
thresholds that are based solely on CADV consider volume across all 
markets, not only the Exchange's, and, unlike the transaction fees and 
credits discussed above that are based on ADV during the billing month 
as a percentage of NYSE CADV or SLP Baseline ADV, the DMM thresholds 
based solely on CADV do not take CADV as a percentage of another 
metric. Therefore the systems issue and the resulting halting of 
securities on the Exchange would not necessarily have had a significant 
impact on CADV for these securities. This is also true for the 
thresholds that are based on quoted size or intraday adding liquidity 
because, while the numerator of the related threshold calculation 
(e.g., the DMM's quoted size or DMM intraday adding liquidity) may have 
decreased because of the systems issue and the resulting trading halts, 
so too would the denominator of the related threshold calculation 
(e.g., the NYSE quoted size or NYSE intraday adding liquidity). This is 
equitable and not unfairly discriminatory because, in addition to 
applying to all DMMs on the Exchange, the Exchange believes that the 
systems issue did not have a significant impact on these thresholds 
and, therefore, including activity on November 12, 2012 will have an 
equal impact for all DMMs.
    The Exchange also believes that the proposed rule change furthers 
the objectives of Section 6(b)(5) of the Act,\12\ in particular, 
because 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 regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system and, in general, to protect investors and the public interest 
and because it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed exclusions would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because they would reasonably ensure that a 
member organization that would otherwise qualify for a particular 
threshold during the month, and the corresponding transaction rate, 
would not be negatively impacted by the systems issue and the resulting 
halting of securities. In particular, the Exchange believes that the 
proposed exclusions promote just and equitable principles of trade 
because they account for the impact on trading volume, liquidity and 
quoting that resulted from the systems issue, for the 216 securities 
impacted by the systems issue and, more broadly, for all securities 
traded on the Exchange. The Exchange further believes that the proposed 
exclusions remove impediments to and perfect the mechanism of a free 
and open market and a national market system because they provide 
transparency for member organizations and the public regarding the 
manner in which the Exchange will calculate certain volume, liquidity 
and quoting thresholds related to billing for activity on the Exchange 
on November 12, 2012 and for the month of November 2012. In this 
regard, the Exchange believes that the proposed exclusions are 
consistent with the Act because they address inquiries from member 
organizations regarding how the Exchange will treat November 12, 2012 
for purposes of billing. Also, the proposed exclusions are not designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers, but are instead designed to provide transparency for all 
member organizations and the public regarding the manner in which the 
Exchange will calculate certain volume, liquidity and quoting 
thresholds in relation to the systems issue. The Exchange is not aware 
of any negative impact on member organizations that would result from 
the proposed change.

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

    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 \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal will allow the Exchange to immediately 
implement the proposed change, thereby reducing the potential for 
confusion among member organizations and the public regarding how the 
Exchange will calculate certain volume, liquidity and quoting 
thresholds related to billing for activity on the Exchange during 
November 2012 and, more specifically, on November 12, 2012. The 
Commission believes that the requested waiver will also assist the 
Exchange in determining transaction fees and credits for member 
organizations in a timely manner after the end of the billing month of 
November 2012. Therefore, the Commission designates the proposal 
operative upon filing.\15\
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    \15\ For purposes only of waiving the 30-day operative delay, 
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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    At any time within 60 days of the filing of the 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

[[Page 74037]]

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 email to rule-comments@sec.gov. Please 
include File Number SR-NYSE-2012-72 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-NYSE-2012-72. 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 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-NYSE-2012-72 and should be 
submitted on or before January 2, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29966 Filed 12-11-12; 8:45 am]
BILLING CODE 8011-01-P