Document ID: SEC-2011-0952-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2011-07-07T04:00Z

[Federal Register Volume 76, Number 130 (Thursday, July 7, 2011)]
[Notices]
[Pages 39960-39963]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16963]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64780; File No. SR-NYSEArca-2011-40]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 

and Immediate Effectiveness of Proposed Rule Change Amending Certain 

Rules and Adding New Rules so That They Remain Substantially Similar to 

Corresponding Financial Industry Regulatory Authority Rules in 

Accordance With a Rule 17d-2 Agreement

 June 30, 2011.

    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 

1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 

that, on June 20, 2011, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 

Arca'') 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 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\ 15 U.S.C. 78a.

    \3\ 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 amend certain rules and add new rules so 

that they remain substantially similar to corresponding Financial 

Industry Regulatory Authority (``FINRA'') rules in accordance with a 

Rule 17d-2 agreement between the two self-regulatory organizations. The 

text of the proposed rule change is available at the Exchange, the 

Commission's Public Reference Room, and http://www.nyse.com.

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,

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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 proposes to amend certain rules and add new rules so 

that they remain substantially similar to corresponding FINRA \4\ rules 

for purposes of a Rule 17d-2 agreement between the two SROs.\5\

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    \4\ FINRA was formerly known as the National Association of 

Securities Dealers, Inc. or ``NASD'' and is the successor entity 

with respect to the Rule 17d-2 agreement discussed herein.

    \5\ See Securities Exchange Act Release No. 55505 (March 22, 

2007), 72 FR 14628 (March 28, 2007).

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Background

    SEC Rule 17d-2 \6\ permits SROs to propose joint plans for the 

allocation of regulatory responsibilities, other than financial 

responsibility rules, with respect to their common members. Under 

paragraph (c) of Rule 17d-2, the Commission may declare such a plan 

effective if, after providing for appropriate notice and comment, it 

determines that the plan is necessary or appropriate in the public 

interest and for the protection of investors, to foster cooperation and 

coordination among the SROs, to remove impediments to, and foster the 

development of, a national market system and a national clearance and 

settlement system, and is in conformity with the factors set forth in 

Section 17(d) of the Securities Exchange Act of 1934, as amended (the 

``Act''). Upon effectiveness of a plan filed pursuant to Rule 17d-2, an 

SRO is relieved of those regulatory responsibilities for common members 

that are allocated by the plan to another SRO.

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    \6\ See 17 CFR 240.17d-2.

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    The Commission has issued an order granting approval and declaring 

effective a plan filed by NYSE Arca and NASD (together the ``Parties'') 

dated February 9, 2007 (``the Plan'') under which regulatory 

responsibility for Common Rules is allocated to NASD.\7\ ``Common 

Rules'' are defined as NYSE Arca Equities rules that are substantially 

similar to NASD rules in that NYSE Arca's rule would not require NASD 

to develop one or more new examination standards, modules, procedures, 

or criteria in order to analyze the application of the rule, or a dual 

member's activity, conduct or output in relation to such rule. The Plan 

includes an attachment, ``NYSE Arca Rules Certification for 17d-2 

Agreement with NASD,'' that lists Common Rules.

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    \7\ See Securities Exchange Act Release No. 55505 (March 22, 

2007), 72 FR 14628 (March 28, 2007). The Parties first entered into 

a Rule 17d-2 agreement in 1977, which thereafter was amended several 

times. See Securities Exchange Act Release No. 54394 (August 31, 

2006), 71 FR 52827 n. 14 (September 7, 2006) (``2006 Release'').

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Proposed Rule Change

    In accordance with Paragraph 2 of the Plan, the Exchange has 

undertaken a review of the Common Rules. In order to maintain the 

current list of Common Rules under the Plan, the Exchange proposes to 

amend certain its rules or add new NYSE Arca Equities rules so that 

they remain substantially similar to corresponding FINRA rules as 

described below.\8\

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    \8\ Because the Parties will only be adding to, deleting from, 

or confirming changes to NYSE Arca rules in the Certification in 

conformance with the definition of Common Rules, the modifications 

to the Certification need not be filed with the Commission as an 

amendment to the Plan. See 2006 Release at 52829. If the Commission 

approves [sic] the proposed rule change, NYSE Arca will submit the 

updated list of Common Rules to FINRA for its confirmation in 

accordance with the Plan.

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    NYSE Arca Equities Rule 2.21(a) and (i) would be amended to delete 

references to filing paper registration forms for registration 

categories not available electronically on CRD because such categories 

no longer exist and thus all NYSE Arca Equities registration forms are 

filed electronically, as is the case with FINRA registrations pursuant 

to FINRA Rule 1010(c). NYSE Arca Equities Rule 2.21(i) also would be 

amended to change the period for filing Form U5 from 10 to 30 days to 

conform it with FINRA's Form U5 filing period in Article VI, Section 

3(a) of FINRA's Bylaws.

    NYSE Arca Equities Rule 2.21(d)(1)(B) would be amended to delete 

references to any discretion for NYSE Arca with respect to compliance 

with continuing education requirements to be consistent with NASD Rule 

1120.

    NYSE Arca Equities Rule 2.21(e), which concerns outside business 

activities, would be deleted and the text of FINRA Rule 3270 would be 

adopted as new NYSE Arca Equities Rule 3270.\9\

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    \9\ NYSE Arca Equities rule numbers that would no longer be used 

would be marked ``Reserved.''

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    NYSE Arca Equities Rules 2.21(g) and (h), which concerns gifts and 

gratuities, would be deleted and the text of FINRA Rule 3220 would be 

adopted as new NYSE Arca Equities Rule 3220.

    NYSE Arca Equities Rule 2.21(j) would be amended to remove the 

requirement for approval of officers, for which FINRA does not have a 

corresponding requirement, and to remove an outdated reference to a 

change in continuing education requirements.

    NYSE Arca Equities Rule 6.6, which addresses frontrunning block 

transactions, would be amended to change the number of shares that 

would trigger application of the Rule from 5,000 to 10,000 shares to 

make it consistent with FINRA's requirements under NASD IM-2110-3.

    NYSE Arca Equities Rule 6.16, which addresses trading ahead of 

customer orders, would be deleted and the text of NASD IM-2110-2 would 

be inserted in that Rule. The Exchange would also add new NYSE Arca 

Equities Rule 6.16A, which would insert the text of NASD Rule 2111, 

which concerns trading ahead of customer market orders.\10\

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    \10\ The SEC has approved FINRA Rule 5320, which harmonizes NASD 

IM-2110-2 and NASD Rule 2111 with New York Stock Exchange LLC 

(``NYSE'') Rule 92. See Securities Exchange Act Release No. 63895 

(February 11, 2011), 76 FR 9386 (February 17, 2011) (SR-FINRA-2009-

090). The anticipated implementation date of FINRA Rule 5320 is 

September 12, 2011. See FINRA Regulatory Notice 11-24 (May 12, 

2011). The Exchange, along with its affiliates, NYSE and NYSE Amex 

LLC, will be submitting a rule filing to adopt the text of FINRA 

Rule 5320 as part of its rules and implement the change concurrently 

with FINRA. The proposed amendment to NYSE Arca Equities Rule 6.16 

and the addition of Rule 6.16A will serve to harmonize NYSE Arca 

Equities' requirements with FINRA's requirements in the interim 

period until the September 12, 2011 implementation.

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    NYSE Arca Equities Rule 9.1(a), which concerns an ETP Holder's 

registration, would be amended to conform it with Article IV, Section 

1(c) of FINRA's By-Law, which requires that a member's registration to 

be kept current by supplementary amendments.

    NYSE Arca Equities Rules 9.1(f) and 9.10, which concern sharing in 

customer accounts and assumption of customer losses, would be deleted 

and the text of FINRA Rule 2150 would be adopted as new NYSE Arca 

Equities Rule 2150.

    NYSE Arca Equities Rule 9.15, which concerns customer account 

statements, would be deleted and the text of NASD Rule 2340(a) and (b) 

and the relevant definitions from paragraph (d) of that Rule would be 

adopted as new NYSE Arca Equities Rule 9.15.

    NYSE Arca Equities Rules 9.21(a) through 9.25, which concern 

advertising and sales literature, would be deleted and the text of NASD 

Rule 2210 would be adopted as new NYSE Arca Equities Rule 9.21.

    The Exchange would also adopt FINRA Rule 2010, which concerns

[[Page 39962]]

standards of commercial honor and just and equitable principles of 

trade, and FINRA Rule 2020, which concerns the use of manipulative, 

deceptive, or other fraudulent devices, as NYSE Arca Equities Rules 

2010 and 2020, respectively.

    Finally, the Exchange proposes certain non-substantive technical 

changes. For consistency with Exchange rules, the Exchange proposes to 

change all references from ``members'' to ``ETP Holders'' and from 

``Pacific Exchange'' to ``NYSE Arca'' and to cross-reference to its own 

rules where appropriate, rather than NASD or FINRA rules.\11\ Finally, 

the Exchange has determined to include references to security futures, 

direct participation programs, and collateralized mortgage obligations 

in proposed NYSE Arca Equities Rule 9.21, which concerns advertising 

and sales literature; although the Exchange currently does not trade 

such products, it has determined to maintain such references for the 

sake of consistency with FINRA rules.

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    \11\ For example, in proposed NYSE Arca Equities Rule 6.16(a), 

the Exchange proposes to cross-reference proposed NYSE Arca Equities 

Rule 2010, rather than FINRA Rule 2010, and in proposed NYSE Arca 

Equities Rule 6.16A(d), the Exchange proposes to cross-reference its 

definition of ``institutional account'' in NYSE Arca Equities Rule 

9.2(a)(3), which is substantially the same as FINRA's definition.

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2. Statutory Basis

    The proposed rule change is consistent with the Act,\12\ in 

general, and furthers the objectives of Section 6(b)(5) of the Act,\13\ 

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.

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    \12\ 15 U.S.C. 78f(b).

    \13\ 15 U.S.C. 78f(b)(5).

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    The Exchange believes that the proposed rule change supports the 

objectives of the Act by providing greater harmonization between NYSE 

Arca Equities Rules and FINRA Rules of similar purpose, resulting in 

less burdensome and more efficient regulatory compliance for dual 

members of both SROs. To the extent the Exchange has proposed changes 

that differ from the FINRA version of the rules, such changes are 

technical in nature and do not change the substance of the proposed 

NYSE Arca Equities rules.

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: (i) 

Significantly affect the protection of investors or the public 

interest; (ii) impose any significant burden on competition; and (iii) 

become operative for 30 days after the date of the filing, or such 

shorter time as the Commission may designate, if consistent with the 

protection of investors and the public interest, it has become 

effective pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-

4(f)(6) thereunder.\15\

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    \14\ 15 U.S.C. 78s(b)(3)(A).

    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 

requires a self-regulatory organization to give the Commission 

written notice of its 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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    A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally 

does not become operative prior to 30 days after the date of the 

filing. However, pursuant to Rule 19b-4(f)(6)(iii),\17\ the Commission 

may designate a shorter time if such action is consistent with the 

protection of investors and the public interest. The Exchange has asked 

the Commission to waive the 30-day operative delay so that the proposal 

may become operative immediately upon filing in order to avoid 

regulatory gaps between the FINRA and NYSE Arca Equities rules.

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    \16\ 17 CFR 240.19b-4(f)(6).

    \17\ 17 CFR 240.19b-4(f)(6)(iii).

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    The Commission believes that waiver of the operative delay would 

enable the Exchange to harmonize its rules with FINRA's rules without 

delay to support the objectives of the Rule 17d-2 Plan, which provides 

that the Common Rules of NYSE Arca Equities and FINRA are to be 

substantially similar. The Commission designates the proposal operative 

upon filing.\18\

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    \18\ For purposes only of waiving the operative delay for this 

proposal, 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 investors, or 

otherwise in furtherance of the purposes of the Act. If the Commission 

takes such action, the Commission shall institute proceedings to 

determine whether the proposed rule should be approved or 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-NYSEArca-2011-40 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-2011-40. 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.,

[[Page 39963]]

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 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-NYSEArca-2011-40 and should 

be submitted on or before July 28, 2011.

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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 

pursuant to delegated authority.\19\

Cathy H. Ahn,

Deputy Secretary.

[FR Doc. 2011-16963 Filed 7-6-11; 8:45 am]

BILLING CODE 8011-01-P