Document ID: SEC-2010-0682-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2010-05-10T04:00Z

[Federal Register: May 10, 2010 (Volume 75, Number 89)]
[Notices]               
[Page 25892-25895]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10my10-92]                         

[[Page 25892]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62013; File No. SR-NYSEArca-2010-35]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Market 
Maker Requirements for Certain Covered Products

April 30, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on April 23, 2010, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. 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 (i) amend NYSE Arca Equities Rule 6.3 and 
(ii) remove the requirement that Market Makers in certain covered 
products enumerated below maintain certain specifically prescribed 
information barrier procedures, but instead apply the standards 
established with the Commission's order approving SR-NYSEArca-2009-78 
(hereinafter referred to as the ``Order'').\3\ A copy of this filing is 
available on the Exchange's Web site at http://www.nyse.com, at the 
Exchange's principal office, at the Commission's Public Reference Room, 
and on the Commission's Web site at http://www.sec.gov.
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    \3\ See Securities Exchange Act Release No. 60604 (September 1, 
2009), 74 FR 46272 (September 8, 2009) (Order approving (i) the 
removal of NYSE Arca Equities Rule 7.26 ``Limitations on Dealings'', 
(ii) the adoption of new NYSE Arca Equities Rule 6.7 ``Trading Ahead 
of Research Reports'', and (iii) the amendment of NYSE Arca Equities 
Rule 6.18 ``Supervision'').
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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
Background Information
    The Exchange eliminated the requirement set forth in NYSE Arca 
Equities Rule 7.26 that Market Makers on the Corporation maintain 
certain specifically prescribed information barrier procedures.\4\ At 
the same time, the Exchange further proposed new NYSE Arca Equities 
Rule 6.7, which (i) prohibits ETP Holders from trading ahead of 
research reports and (ii) requires each ETP Holder to establish, 
maintain and enforce procedures regarding the flow of information 
between research department personnel and trading department personnel. 
Finally, the Exchange revised NYSE Arca Equities Rule 6.18 to 
incorporate compliance with NASD Rule 3010(a)(1), (b)(1), and (c)(1).
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    \4\ Id.
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NYSE Arca Equities Rules 5 & 8
    Currently, certain product related NYSE Arca Equities rules cross 
reference NYSE Arca Equities Rule 7.26 regarding information barriers. 
These cross references to NYSE Arca Equities Rule 7.26 and the 
attendant obligations, contained in Rules 5.2(j)(6), 8.200, 8.201, 
8.202, 8.203, 8.204, 8.300, 8.400, 8.500, and 8.700, generally expanded 
the definition of ``other business activities'' as set forth in NYSE 
Arca Equities Rule 7.26 so as to require ETP Holders acting as a Market 
Maker in the covered products to maintain information barrier 
procedures when the Market Maker (or an affiliate) engages in certain 
other business activities related to the covered products. At the time 
the Exchange eliminated NYSE Arca Equities rule 7.26, it did not 
further eliminate or otherwise amend the obligations set forth in Rules 
5.2(j)(6), 8.200, 8.201, 8.202, 8.203, 8.204, 8.300, 8.400, 8.500, and 
8.700. The current limitations and prohibitions set forth in these 
rules also specifically prohibit ETP Holders acting as Market Makers in 
the covered products from using any material nonpublic information 
received from any person associated with an ETP Holder or employee of 
such person regarding trading by such person or employee in any 
components of the related products or any related derivative 
instruments. The purpose of this filing is to eliminate the requirement 
that Market Makers must maintain certain specifically prescribed 
information barrier procedures and thereby conform the standards 
applicable to the covered products to the standards established with 
the elimination of NYSE Arca Equities Rule 7.26, the adoption of NYSE 
Equities Rule 6.7, and the amendment to NYSE Arca Equities Rule 6.18. 
In so doing, the Exchange also seeks to amend NYSE Arca Rule 6.3 in 
order to confirm that ETP Holders acting as Market Makers in the 
covered products (and their affiliates) must establish, maintain and 
enforce written policies and procedures reasonably designed to prevent 
the misuse of any material nonpublic information with respect to such 
products, any components of the related products, any physical asset or 
commodity underlying the product, applicable currencies, underlying 
indexes, related futures or options on futures, and any related 
derivative instruments. This proposal is consistent with the 
elimination of Rule 7.26 and the related changes to NYSE Arca Equities 
Rules 6.7 and 6.18. Removal of these cross references is also 
consistent with the current approach taken by Nasdaq.\5\ Furthermore, 
the Exchange notes that Market Makers on NYSE Arca must comply with 
their obligations to maintain and enforce written policies and 
procedures reasonably designed to prevent the misuse of material, non-
public information.
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    \5\ See Nasdaq Rule 5710 (Securities Linked to the Performance 
of Indexes and Commodities (Including Currencies) and Nasdaq Rule 
5740 (Derivative Securities Traded Under Unlisted Trading 
Privileges).
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Example of Rule Text To Be Removed, Commentary .01(a) to Rule 5.2(j)(6)
    The following example identifies the typical cross reference to 
Rule 7.26 and the attendant text that the Exchange proposes to 
eliminate. Rule 5.2(j)(6) describes the Exchange's listing standards 
for Equity Index-Linked Securities, Commodity-Linked Securities, 
Currency-Linked Securities, Fixed Income Index-Linked Securities, 
Futures-Linked Securities and Multifactor Index-Linked Securities. 
Commentary .01(a) to this rule states:
    An ETP Holder acting as a registered Market Maker in Commodity-
Linked Securities, Currency-Linked Securities, Futures-Linked 
Securities or Multifactor Index-Linked Securities, which is composed in 
part of Commodity or

[[Page 25893]]

Currency Reference Assets, is obligated to comply with Rule 7.26 
pertaining to limitations on dealings when such Market Maker, or 
affiliate of such Market Maker, engages in Other Business Activities. 
For purposes of Commodity-Linked Securities, Currency-Linked 
Securities, Futures-Linked Securities or Multifactor Index-Linked 
Securities, if applicable, Other Business Activities shall include 
acting as a Market Maker or functioning in any capacity involving 
market-making responsibilities in the Commodity Reference Asset, 
Currency Reference Asset, or Futures Reference Asset as applicable 
(Commodity Reference Assets, Currency Reference Assets, and Futures 
Reference Assets together, ``Index Assets''), the components underlying 
the Reference Asset, the commodities, currencies or futures underlying 
the Index Asset components, or options, futures or options on futures 
on the Index Asset, or any other derivatives (collectively, 
``derivative instruments'') based on the Index Asset or based on any 
Index Asset component or any physical commodity, currency or futures 
underlying an Index Asset component. However, an approved person of an 
ETP Holder acting as a registered Market Maker in Commodity-Linked 
Securities, Currency-Linked Securities, Futures-Linked Securities or 
Multifactor Index-Linked Securities, if applicable, that has 
established and obtained Corporation approval of procedures restricting 
the flow of material, non-public market information between itself and 
the ETP Holder pursuant to Rule 7.26, and any member, officer or 
employee associated therewith, may act in a market making capacity, 
other than as a Market Maker in the Commodity-Linked Securities, 
Currency-Linked Securities, Futures-Linked Securities or Multifactor 
Index-Linked Securities, if applicable, on another market center, in 
the Index Asset components, the commodities, currencies or futures 
underlying the Index Asset components, or any derivative instruments 
based on the Index Asset or based on any Index Asset component or any 
physical commodity, currency or futures underlying an Index Asset 
component.
    The first sentence of this commentary is designed to remind Market 
Makers on NYSE Arca of their obligation to comply with Rule 7.26 when 
it engages in ``Other Business Activities''--a term that had been 
defined in Rule 7.26. The second sentence of this commentary defines, 
in the context of this product, the term ``Other Business Activities''. 
The third and final sentence of this commentary reminds Market Makers 
that, consistent with Rule 7.26, they may act in certain market making 
capacities if they have established, and obtained the Exchange's 
approval of, appropriate procedures.
    By removing this commentary and applying the standards established 
by the Order, the Exchange is amending its rules in a manner consistent 
with the standards previously approved by the Commission.\6\ Market 
Makers must comply with NYSE Arca Equities Rules 6.3 (as revised 
herein) and 6.18, which prohibit Market Makers from using material non-
public information and require all ETP Holders to establish, maintain, 
and enforce written policies and procedures designed to supervise the 
business in which it engages and to prevent the misuse of material, 
non-public information. In this regulatory framework, it is no longer 
necessary for the Exchange to prescribe specific information barrier 
procedures. In addition, as revised, the requirements of Rule 5.2(j)(6) 
are generally consistent with those set forth in Nasdaq Rule 5710.
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    \6\ See note 3, supra.
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    By eliminating Rule 7.26 and establishing standards similar to 
Nasdaq's, the Exchange has placed its participants on notice as to 
their obligations to maintain and enforce written policies and 
procedures reasonably designed to prevent the misuse of material, non-
public information. Moreover, by revising Rule 6.3, as described 
herein, ETP Holders acting as Market Makers are on notice that they are 
prohibited from using material, non-public information. Finally, Market 
Makers on NYSE Arca (and their affiliates) remain on notice of their 
obligations to maintain and enforce written policies and procedures 
reasonably designed to prevent the misuse of material, non-public 
information.
Conforming Commentary to NYSE Arca Equities Rule 6.3
    The Exchange proposes adding new commentary .04 to Rule 6.3, 
Prevention of the Misuse of Material, Nonpublic Information. By adding 
this commentary, described below, the Exchange seeks to extend the 
requirements of Rule 6.3 regarding each ETP Holder's obligation to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to prevent the misuse of material, non-public 
information applies to Market Makers engaged in the trading of 
securities and/or any derivatives or non security components of any of 
the products listed and traded on the Exchange pursuant to Rule 5 and 
Rule 8. The proposed language of commentary .04 to Rule 6.3 is as 
follows:
    ETP Holders acting as a registered Market Maker in products listed 
under NYSE Arca Equities Rules 5 and 8, and their affiliates, shall 
also establish, maintain and enforce written policies and procedures 
reasonably designed to prevent the misuse of any material nonpublic 
information with respect to such products, any components of the 
related products, any physical asset or commodity underlying the 
product, applicable currencies, underlying indexes, related futures or 
options on futures, and any related derivative instruments.
    With the addition of this commentary, the Exchange proposes to 
remove similar commentary contained in each of the rules highlighted 
below. The specific proposed changes, consistent with the example 
described above, are identified in further as follows.
     NYSE Arca Equities Rule 5.2(j)(6), the Exchange's listing 
standards for Equity Index-Linked Securities, Commodity-Linked 
Securities, Currency-Linked Securities, Fixed Income Index-Linked 
Securities, Futures-Linked Securities and Multifactor Index-Linked 
Securities. The Exchange is removing Commentary .01 (a) and (d) and is 
changing the numbering within the rule to accommodate for this 
deletion.
     NYSE Arca Equities Rule 8.200, the Exchange's listing 
standards for Trust Issued Receipts. The Exchange is removing 
Commentary .02 (e)(1) and (4) and is changing the numbering within the 
rule to accommodate for this deletion.
     NYSE Arca Equities Rule 8.201, the Exchange's listing 
standards for Commodity-Based Trust Shares. The Exchange is removing 
Sections (g) and (i) and is changing the numbering within the rule to 
accommodate for this deletion.
     NYSE Arca Equities Rule 8.202, the Exchange's listing 
standards for Currency Trust Shares. The Exchange is removing Sections 
(g) and (i) and is changing the numbering within the rule to 
accommodate for this deletion.
     NYSE Arca Equities Rule 8.203, the Exchange's listing 
standards for Commodity Index Trust Shares. The Exchange is removing 
Sections (g) and (i) and is changing the numbering within the rule to 
accommodate for this deletion.
     NYSE Arca Equities Rule 8.204, the Exchange's listing 
standards for Commodity Futures Trust Shares. The

[[Page 25894]]

Exchange is removing Subsection (f)(1) and (4) and is changing the 
numbering within the rule to accommodate for this deletion.
     NYSE Arca Equities Rule 8.300, the Exchange's listing 
standards for Partnership Units. The Exchange is removing Subsection 
(e)(1) and (4) and is changing the numbering within the rule to 
accommodate for this deletion.
     NYSE Arca Equities Rule 8.400, the Exchange's listing 
standards for Paired Trust Shares. The Exchange is removing Subsection 
(e)(1) and (4) and is changing the numbering within the rule to 
accommodate for this deletion.
     NYSE Arca Equities Rule 8.500, the Exchange's listing 
standards for Trust Units. The Exchange is removing Sections (f) and 
(h) and is changing the numbering within the rule to accommodate for 
this deletion.
     NYSE Arca Equities Rule 8.700, the Exchange's listing 
standards for Managed Trust Securities. The Exchange is removing 
Subsection (f)(1) and (4) and is changing the numbering within the rule 
to accommodate for this deletion.
Conforming Commentary to NYSE Arca Equities Rule 6.18
    Finally, the Exchange is adding new Commentary .02 to NYSE Arca 
Equities Rule 6.18. Currently, NYSE Arca Equities Rule 6.18 refers to 
the obligation of an ETP Holder to supervise the business in which it 
engages as well as the activities of its associated persons. By virtue 
of the obligations set forth in NYSE Arca Equities Rule 6.3 (as 
discussed above), however, ETP Holders that are registered Market 
Makers in products listed under NYSE Arca Equities Rules 5 and 8, must 
also supervise the activity of its affiliates. The Exchange is hereby 
adding Commentary .02 in order to conform the supervisory obligations 
of such ETP Holders to the standards of NYSE Arca Equities Rule 6.3.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (the 
``Act''),\7\ in general, and furthers the objectives of Section 6(b)(5) 
of the Act,\8\ 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 facilitating transactions in securities, and 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. The Exchange believes that the 
proposed rule change will eliminate unnecessary confusion in its rule 
structure, while conforming the standards applicable to covered 
products regarding the obligations of its participants to maintain and 
enforce written policies and procedures reasonably designed to prevent 
the misuse of material, non-public information to the standards 
established with the elimination of NYSE Arca Equities Rule 7.26, the 
adoption of NYSE Equities Rule 6.7, and the amendment to NYSE Arca 
Equities Rule 6.18.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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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 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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 the pre-filing requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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.

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-NYSEArca-2010-35 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-NYSEArca-2010-35. 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 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

[[Page 25895]]

available publicly. All submissions should refer to File Number SR-
NYSEArca-2010-35 and should be submitted on or before June 1, 2010.
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    \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. 2010-10967 Filed 5-7-10; 8:45 am]
BILLING CODE 8010-01-P