Document ID: SEC-2010-1071-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Amex LLC
Posted Date: 2010-07-15T04:00Z

[Federal Register: July 15, 2010 (Volume 75, Number 135)]
[Notices]               
[Page 41264-41273]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15jy10-111]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62479; File No. SR-NYSEAmex-2010-31]

 
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of 
Amendment Nos. 2 and 3, and Order Granting Accelerated Approval to a 
Proposed Rule Change, as Modified by Amendment Nos. 1, 2, and 3 
Thereto, To Adopt as a Pilot Program a New Rule Series for the Trading 
of Securities Listed on the Nasdaq Stock Market Pursuant to Unlisted 
Trading Privileges, and Amending Existing NYSE Amex Equities Rules as 
Needed To Accommodate the Trading of Nasdaq-Listed Securities on the 
Exchange

July 9, 2010.

I. Introduction

    On March 26, 2010, NYSE Amex LLC (``Exchange'' or ``NYSE Amex'') 
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: 
(1) Adopt, as a pilot program, a new NYSE Amex Equities Rule Series 
(Rules 500-525) for the trading of securities listed on the Nasdaq 
Stock Market (``Nasdaq'') pursuant to unlisted trading privileges 
(``UTP''); and (2) amend existing NYSE Amex Equities rules to 
accommodate the trading of Nasdaq-listed securities on the Exchange. 
Subsequently, on April 6, 2010, NYSE Amex filed Amendment

[[Page 41265]]

No. 1 to the proposed rule change. The proposed rule change, as 
amended, was published in the Federal Register on April 19, 2010.\3\ 
The Commission received no comments on the proposal. On June 21, 2010, 
NYSE Amex filed Amendment No. 2 to the proposed rule change. On July 9, 
2010, NYSE Amex filed Amendment No. 3 to the proposed rule change. This 
order provides notice of filing of Amendment Nos. 2 and 3, and grants 
accelerated approval to the proposed rule change, as modified by 
Amendment Nos. 1, 2, and 3.
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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. 61890 (April 12, 
2010), 75 FR 20401 (``Notice'').
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II. Description of the Proposal

A. Overview

    The Exchange proposes to adopt, as a pilot program, a new NYSE Amex 
Equities Rule Series to specifically govern the trading of any security 
listed on the Nasdaq that (1) is designated as an ``eligible security'' 
under the Joint Self-Regulatory Organization Plan Governing the 
Collection, Consolidation and Dissemination of Quotation and 
Transaction Information for Nasdaq-Listed Securities Traded on 
Exchanges on an Unlisted Trading Privilege Basis, as amended (``UTP 
Plan''); and (2) has been admitted to dealings on the Exchange pursuant 
to UTP in accordance with Section 12(f) of the Act \4\ (collectively, 
``Nasdaq Securities''). The Exchange proposes to trade Nasdaq 
Securities on the same systems and facilities it uses to trade its 
listed securities in accordance with the same trading rules, subject to 
certain exceptions:
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    \4\ 15 U.S.C. 78l(f).
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     There will not be an opening or closing auction for Nasdaq 
Securities traded on the Exchange. Trading in Nasdaq Securities will 
open on a quote at 9:30 a.m. and will close at 4 p.m., or immediately 
thereafter under certain circumstances, using the last sale on the 
Exchange as the Closing Price.
     ``Good 'til Canceled'' (``GTC'') Orders and ``Stop'' 
Orders for Nasdaq Securities will be modified to provide that any GTC 
or Stop Orders that are unexecuted at the close of trading will be 
treated as Day Orders and canceled. In addition, the Exchange will not 
accept limit or market ``At the Close'' (``MOC/LOC''), ``At the 
Opening'' (``OPG''), ``Closing Offset'' (``CO'') or ``Good 'til Cross'' 
(``GTX'') Orders for the trading of Nasdaq Securities. All other order 
types will be accepted.
     Each Nasdaq Security will be assigned one Designated 
Market Maker (``DMM'') Unit, though the allocation process will be 
streamlined to follow the approach used by the Exchange for 
Supplemental Liquidity Providers (``SLPs'').
     For those Nasdaq Securities in which it is registered, a 
DMM Unit will be responsible for the affirmative obligation of 
maintaining a fair and orderly market in accordance with Exchange 
rules, subject to an enhanced quoting requirement and a phased-in 
implementation of Depth Guidelines and Price Participation Points 
(``PPPs'') to enable the Exchange to collect trading data adequate to 
calculate such guidelines.
     Trading in Nasdaq Securities will be subject to rules that 
are substantially similar to FINRA's ``Manning Rule,'' rather than Rule 
92--NYSE Amex Equities.
     The Exchange's audit trail rules, including Rules 123- and 
132B-NYSE Amex Equities, will apply to the trading of Nasdaq Securities 
on the Exchange, except that those members and member organizations 
that are also FINRA members and subject to FINRA's Rule 7400 Series 
(``Order Audit Trail System'' or ``OATS'') will be exempt from Rules 
123- and 132B-NYSE Amex Equities.
    NYSE Amex will trade Nasdaq-listed equities and any other Nasdaq-
listed security that trades like an equity security (e.g., rights, 
warrants), and will also trade one Nasdaq-listed exchange traded fund 
(``ETF''), the Invesco PowerShares QQQTM Exchange Traded 
Fund (``QQQs'').
    The Exchange intends to implement trading of Nasdaq Securities 
using a phased-in approach, and to expand the program to eventually 
include all securities listed on Nasdaq. The Exchange proposes that 
this pilot program commence on the date the Commission approves the 
proposed rule change, and that it continue until the earlier of the 
Commission's approval to make such pilot program permanent or September 
30, 2010.

B. Applicability and Trading Hours

    Trading of Nasdaq Securities on the Exchange shall be governed by 
existing NYSE Amex Equities rules, as well as the new Rule 500 Series. 
To the extent the existing rules conflict with the Rule 500 Series, the 
Rule 500 series will control.
    Pursuant to proposed Rule 502, the Exchange will trade Nasdaq 
Securities during regular trading hours in accordance with existing 
Rule 51. The Exchange also will permit Nasdaq Securities to trade in 
the Exchange's ``Off-Hours Trading Facility.'' Due to modifications to 
the opening and closing for Nasdaq Securities, a member or member 
organization will not be permitted to make any bid, offer, or 
transaction for a Nasdaq Security on Exchange systems, or route an 
order for a Nasdaq Security to another market center from Exchange 
systems, before 9:30 a.m. or after the close of the Off-Hours Trading 
session.

C. Assignment of Nasdaq Securities to DMMs and SLPs

    The Exchange proposes to trade Nasdaq Securities within the 
existing DMM and SLP framework used to trade its listed securities. The 
Exchange will create a ``Nasdaq Securities Liaison Committee,'' 
consisting of NYSE Euronext employees of the Operations and U.S. 
Markets Divisions,\5\ which will be responsible for reviewing and 
admitting Nasdaq Securities for trading on the Exchange. After 
admitting a Nasdaq Security to dealings on the Exchange, the Nasdaq 
Securities Liaison Committee also will assign the security to a DMM 
Unit and one or more SLPs.\6\ No more than one DMM Unit will be 
assigned to any Nasdaq Security, and a member organization will not be 
permitted to be registered as both the DMM Unit and an SLP for the same 
Nasdaq Security. In its discretion, the Nasdaq Securities Liaison 
Committee also may reassign one or more Nasdaq Securities to a 
different DMM Unit or to a different SLP or SLPs.
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    \5\ A representative of NYSE Regulation Inc. (``NYSER'') would 
act as an ad hoc member of the Committee.
    \6\ See proposed NYSE Amex Equities Rule 501.
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    Existing Exchange DMM Units will be automatically eligible for the 
assignment of Nasdaq Securities, so long as they qualify in accordance 
with Rules 98- and 103B(II)-NYSE Amex Equities, and proposed Rule 
504(b)--NYSE Amex Equities.\7\
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    \7\ The Exchange proposes to amend Rules 98(b)(2) (definition of 
``DMM unit'') and 98(b)(15) (definition of ``Related products'')--
NYSE Amex Equities to accommodate the trading of Nasdaq Securities 
on the Exchange.
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    The Exchange intends to admit the QQQ to trading, and has proposed 
a set of special requirements governing the assignment of the QQQs and 
its component securities.\8\
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    \8\ See proposed Rule 504--NYSE Amex Equities. The Exchange 
stated that it will review proposed Rule 504--NYSE Amex Equities and 
the provisions governing the allocation of the QQQs and its 
component securities if the Exchange's share of the market for the 
Nasdaq Securities it trades exceeds 10% of the consolidated Tape C 
aggregate average daily trading volume. See id., 75 FR at 20405.
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D. Integration of NYSE Amex-Listed Securities and Nasdaq Securities at 
Posts on the Trading Floor

    The Exchange anticipates that some DMM Units currently registered 
on the NYSE will seek to register as DMM

[[Page 41266]]

Units on the Exchange to trade Nasdaq Securities. Under Exchange rules, 
all current NYSE members and member organizations are deemed members 
and member organizations of the Exchange, and DMM Units are 
automatically granted an NYSE Amex Equities trading license.\9\ An NYSE 
DMM Unit that wishes to trade Nasdaq Securities and that is not already 
registered as a DMM Unit on the Exchange will need to register as such 
with the Exchange to ensure proper tracking and systems configuration. 
Similarly, each DMM will need to register with the Exchange to confirm 
that it meets all applicable registration requirements and to ensure 
proper tracking and systems set-up. In addition, an NYSE DMM Unit 
seeking to register as a DMM Unit on the Exchange will also need to 
advise FINRA, so that FINRA can assess whether such registration 
triggers different and/or additional financial and operational 
requirements, including but not limited to those pertaining to net 
capital.
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    \9\ See Rules 2.10- and 2.20-NYSE Amex Equities.
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    Proposed Rules 103B(IX) and 504(d)-NYSE Amex Equities will require 
that Nasdaq Securities be allocated for trading, and DMM Units shall 
trade such securities, only at panels exclusively designated for 
trading listed and/or Nasdaq Securities on the Exchange.
    Exchange-listed equities securities currently trade on Posts 1 and 
2 on the Trading Floor. However, there are not enough panels on those 
posts to accommodate the trading of additional hundreds of Nasdaq 
Securities. To accommodate the trading of Nasdaq Securities, the 
Exchange needs to trade Exchange-listed and Nasdaq Securities on 
additional posts. Therefore, the Exchange proposes to amend Rule 103B-
NYSE Amex Equities to permit Exchange-listed securities and securities 
admitted to dealings on the Exchange on a UTP basis to trade on posts 
throughout the Trading Floor. To prevent any confusion that could arise 
among members trading both NYSE-listed and Exchange-listed or traded 
securities, which trade under different rules, proposed Rule 103B(IX) 
would provide that Exchange-listed and/or traded (i.e. Nasdaq 
Securities) securities shall be assigned only to panels designated for 
the trading of such securities.
    A DMM Unit that is registered to trade NYSE- and Exchange-listed 
securities, as well as Nasdaq Securities, could trade all such 
securities at the same post. However, a DMM Unit staff person would not 
be permitted to simultaneously trade both NYSE and NYSE Amex/Nasdaq 
securities, and the DMM Unit would need to commit staff to trade NYSE-
listed securities separate from staff committed to trade Exchange-
listed or traded securities at any given time during the trading day. 
However, intraday staff moves between panels would be permitted.

E. Security Allocation and Reallocation

    Rule 103B-NYSE Amex Equities prescribes the criteria and procedures 
for the allocation and/or reallocation of NYSE Amex-listed equities 
securities to registered and qualified DMM Units. In particular, part 
IX of the rule currently provides that Exchange-listed equity 
securities must be allocated to posts on the Trading Floor that are 
exclusively designated for the trading of NYSE Amex securities.

F. Assignments to SLPs

    An Exchange member or member organization may apply to be an SLP in 
Nasdaq Securities and will be eligible for the assignment of Nasdaq 
Securities once it registers and qualifies as an SLP in accordance with 
Rule 107B-NYSE Amex Equities. As with NYSE-registered DMMs and DMM 
Units, an NYSE-registered SLP is automatically deemed a member 
organization of NYSE Amex Equities under Rule 2.10-NYSE Amex Equities. 
An NYSE-registered SLP that wishes to trade Nasdaq Securities as an 
NYSE Amex SLP must register with and be approved by the Exchange as an 
SLP in accordance with all applicable NYSE Amex Equities Rules.
    The Nasdaq Securities Liaison Committee will assign one or more 
SLPs to Nasdaq Securities for trading on the Exchange. A member 
organization cannot be both the DMM Unit and an SLP for the same Nasdaq 
Security. If an SLP withdraws from its status as an SLP, its Nasdaq 
Securities will be reassigned to a different SLP(s) in accordance with 
Rule 107B-NYSE Amex Equities.

G. Units of Trading; Bids and Offers; Dissemination of Quotations; 
Priority

    Proposed Rule 506-NYSE Amex Equities prescribes the basic unit of 
trading for Nasdaq Securities, and addresses some requirements for bids 
and offers, the dissemination of quotations, and priority and parity of 
executions of Nasdaq Securities. Nasdaq Securities will be traded 
almost exactly as the Exchange's listed securities.\10\
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    \10\ See Notice, supra note 3, 75 FR at 20405-06, for a detailed 
discussion of the trading rules applicable to Nasdaq Securities.
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H. Openings and Closings

    The Exchange will not conduct an opening or closing auction in 
Nasdaq Securities. Instead, NYSE Amex will open trading on a quote at 
9:30 a.m. and close on the last sale on the Exchange at 4 p.m.
1. Openings
    Under proposed Rule 508(a), trading in each Nasdaq Security will 
open at 9:30 a.m. or as soon thereafter as possible, or at such other 
time as may be specified by the Exchange, based on a quote published by 
the DMM Unit assigned to the security. Because Nasdaq Securities will 
open on a quote, DMM Units will not be permitted or required to provide 
pre-opening or opening indications as prescribed by Rules 15- and 123D-
NYSE Amex Equities. In addition, because the Exchange will not conduct 
an opening auction for Nasdaq Securities, DMM Units will not be 
permitted or required to hold or represent orders for Nasdaq Securities 
pursuant to Rule 115A.20-NYSE Amex Equities. Orders for Nasdaq 
Securities shall not be accepted by the Exchange, and will be 
systemically blocked, before trading opens on any business day.\11\
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    \11\ The Exchange has filed a proposed rule change to 
incorporate the receipt and execution of odd-lot interest into the 
round lot market (``trading-in-shares'') and to decommission the use 
of the odd-lot system. See Securities Exchange Act Release No. 62303 
(June 16, 2010), 75 FR 35865 (June 23, 2010) (SR-NYSEAmex-2010-53). 
However, until the implementation of trading-in-shares by the 
Exchange, odd-lot orders in Nasdaq Securities that are received by 
the Exchange prior to the opening of trading in those securities on 
the Exchange will be held and will not be executed until the first 
round-lot transaction in each particular security. See section II.U 
infra. Open odd-lot orders may be cancelled by the entering firm at 
any time.
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2. Closings
    Under Rule 508(b), trading in Nasdaq Securities will not close 
based on a closing auction, but will instead close at the end of the 
regular trading session at 4 p.m., or at such other time as may be 
specified by the Exchange. Except for ``aggregate-price orders'' \12\ 
or ``closing-price orders'' entered to offset an error entered in the 
``Off-Hours Trading Facility'' in accordance with proposed Rule 511-
NYSE Amex Equities, orders for Nasdaq Securities will not be accepted 
by the Exchange after the regular trading session on any business 
day.\13\
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    \12\ The Exchange is proposing to amend the definition of 
``aggregate-price order'' under Rule 900-NYSE Amex Equities to 
accommodate trading Nasdaq Securities in the Off-Hours Trading 
Facility.
    \13\ These terms are defined under Rule 900-NYSE Amex Equities.
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    The ``Closing Price'' for a Nasdaq Security will be the price of 
its last sale on the Exchange at or prior to the close

[[Page 41267]]

of regular trading at 4 p.m.\14\ Orders for Nasdaq Securities that are 
unexecuted at the close of trading at 4 p.m. shall be cancelled.
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    \14\ See Rules 502- and 508- NYSE Amex Equities. See also 
proposed Rule 501-NYSE Amex Equities.
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    When the market for a Nasdaq Security is slow at the close of 
trading because of a gap quote situation, the DMM Unit must execute the 
final trade in the security in a manner consistent with a fair and 
orderly market, with reference to the trading characteristics of the 
security at issue, including its price, average daily trading volume 
(``ADTV''), average volatility, the prior sale of the security on the 
Exchange, and the closing price on the UTP Listing Market.\15\ To 
ensure this, Floor Governor approval is required to close a Nasdaq 
Security that is ``slow.'' In such circumstances, the DMM will pair off 
liquidity to the extent available, and then execute a final trade at or 
immediately after the close that will set the Closing Price. All 
residual marketable interest for that security received prior to the 
close of trading shall first be executed at the Closing Price and then 
all unexecuted interest for the security shall be cancelled.
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    \15\ Under proposed Rule 501-NYSE Amex Equities, the Exchange 
defines the term ``UTP Listing Market'' to have the same meaning as 
the term ``Listing Market,'' as defined under the ``UTP Plan'' (also 
defined therein).
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    If an extreme order imbalance at or near the close of the regular 
trading session could result in a Closing Price dislocation, the 
procedures of Rule 123C(9)-NYSE Amex Equities, which permit the 
Exchange to temporarily suspend the hours of operation for the 
solicitation and entry of orders into Exchange systems, shall apply. 
However, because the Exchange will not conduct a closing auction in 
Nasdaq Securities, no other procedures of Rule 123C-NYSE Amex Equities 
shall apply to trading in Nasdaq Securities.
    The proposed modifications to the opening and closing of the 
trading of Nasdaq Securities require corresponding modifications to the 
``GTC'' and ``Stop'' order types. Specifically, GTC Orders and 
unelected Stop Orders for Nasdaq Securities that are not fully executed 
at the close of the regular trading session shall be treated as Day 
Orders and shall be cancelled; they will not remain on the Exchange's 
systems overnight. In addition, because the Exchange will not conduct 
either an opening or closing auction in Nasdaq Securities, the Exchange 
will not accept MOC/LOC, OPG, CO, or GTX Orders for Nasdaq Securities. 
All other order types noted in Rule 13-NYSE Amex Equities will be 
permitted for the trading of Nasdaq Securities.\16\
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    \16\ See proposed Rule 501--NYSE Amex Equities.
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I. Dealings of DMM Units and SLPs

    As noted above, the Exchange proposes to trade Nasdaq Securities 
using the same DMM/SLP framework as currently used for its listed 
securities.
1. DMM Units
    DMM Units registered to trade Nasdaq Securities on the Exchange 
will be required to fulfill their responsibilities and duties for those 
securities in accordance with all applicable Exchange rules and 
requirements (``DMM rules''),\17\ subject to two modifications. First, 
in lieu of the tiered quoting requirement (5% and 10%) currently in 
place for listed securities under Rule 104(a)(1)(A)--NYSE Amex 
Equities, proposed Rule 509(a)(1) requires a DMM Unit to have a bid or 
offer at the national best bid or national best offer (``inside'') in 
each assigned Nasdaq Security an average of at least 10% of the time, 
or more, during the regular business hours of the Exchange for each 
calendar month.\18\ Second, pursuant to Rules 104(f)(ii)- and (iii)-
NYSE Amex Equities, a DMM Unit is responsible for maintaining price 
continuity with reasonable depth for its registered Nasdaq Securities, 
in accordance with Depth Guidelines to be published by the Exchange. 
However, to give the Exchange time to phase-in appropriate Depth 
Guidelines and PPPs, these provisions will not be operative until 18 
weeks after the approval of the proposed rule change by the 
Commission.\19\
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    \17\ The term ``DMM rules'' is defined in Rule 98--NYSE Amex 
Equities.
    \18\ Credit will be given for executions for the liquidity 
provided by the DMM Unit. Reserve or other hidden orders entered by 
the DMM Unit will not be included in the inside quote calculations.
    \19\ The Exchange believes that a phased-in approach is 
appropriate so that Depth Guidelines and PPPs may be calculated 
based on actual trading data of Nasdaq Securities on the Exchange. 
Accordingly, following implementation and roll-out of the pilot 
program, NYSE Amex would collect and analyze 60 days of trade data 
and would then implement these guidelines for trading Nasdaq 
Securities on the Exchange within 30 calendar days. The 18-week 
phase-in period contemplates a two-week period to roll out the pilot 
program.
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    As is the case with listed securities, a DMM Unit also will be 
responsible for facilitating openings, reopenings, and closings for 
each of the Nasdaq Securities in which it is registered, in accordance 
with applicable NYSE Amex Equities rules, including the procedures of 
proposed Rules 508- and 515-NYSE Amex Equities.\20\ A DMM Unit also 
will be responsible for facilitating trading when the market is 
``slow'' (such as during a gap quote) \21\ and helping to close Nasdaq 
Securities that are subject to an imbalance. Other obligations would 
apply, including providing contra side liquidity as needed for the 
execution of odd-lot orders in Nasdaq Securities, meeting stabilization 
and re-entry requirements, and complying with the net capital 
requirements under the Act and Rules 103.20-, 4110-, and 4120-NYSE Amex 
Equities.
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    \20\ However, because proposed rules do not provide for opening 
and closing auctions in Nasdaq Securities, DMMs would not be 
responsible for facilitating openings and closings. The Exchange has 
represented that, if it were to amend its rules to provide for 
openings and closing in Nasdaq Securities, a DMM would be 
responsible for facilitating openings and closings in its assigned 
securities.
    \21\ A DMM Unit facilitates trading in slow markets by either 
conducting an auction or trading out of the slow market to resume a 
``fast'' (i.e. quote-protected) market. It does not mean, however, 
that a DMM Unit must participate on the contra-side of the market 
when it is slow.
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    The DMM would be the sole market maker on the Exchange in its 
registered Nasdaq Securities. The Exchange believes that, because it 
would retain obligations that other market participants, both on the 
Exchange and in other markets, do not have, a DMM Unit should retain 
the benefits of parity and liquidity incentives, as well as the ability 
to use the Capital Commitment Schedule (``CCS''),\22\ when trading 
Nasdaq Securities.\23\
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    \22\ See Rule 1000(d)--NYSE Amex Equities.
    \23\ The Exchange has stated that it will submit a separate fee 
filing detailing the rebate structure for trading Nasdaq Securities 
at a later date. The Exchange has represented that, although the 
price levels will likely differ from the rebate in place for trading 
in listed equities, the structure will be similar--specifically, 
that rebates will be paid to DMMs, SLPs, and other members 
(including Floor brokers) who provide liquidity on the Exchange. 
Telephone conversation between Jason Harman, Consultant, NYSE Amex, 
and Nathan Saunders, Special Counsel, Division of Trading and 
Markets, Commission, on June 9, 2010.
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    In addition, other provisions of existing Exchange rules related to 
DMM responsibilities and obligations would be modified:
     DMMs will not be required to obtain Floor Official 
approval prior to engaging as a dealer in transactions for Nasdaq 
Securities that fall under Rule 79A.20-NYSE Amex Equities.
     Notwithstanding the prescriptions of Rule 36.30-NYSE Amex 
Equities governing communications to and from the DMM Unit post on the 
Trading Floor, an individual DMM registered in an ETF may use a 
telephone connection or order entry terminal at the DMM Unit's post to 
enter a proprietary order in the ETF in another market center, in a 
component security of such ETF, or in an option or futures contract 
related to such ETF, and may use the post

[[Page 41268]]

telephone to obtain public market information with respect to such ETF, 
options, futures, or component securities. If the order in the 
component security of the ETF is to be executed on the Exchange, the 
order must be entered and executed in compliance with Rule 112-NYSE 
Amex Equities and Rule 11a2-2(T) under the Act, and must be entered 
only for the purpose of creating a bona fide hedge for a position in 
the ETF. The Exchange is proposing to add this provision to permit DMM 
Units registered in an ETF to execute more efficiently hedging 
transactions for the security.\24\
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    \24\ The Exchange modeled this provision after a provision in 
NYSE Rule 36.30. See Securities Exchange Act Release No. 44616 (July 
30, 2001), 66 FR 40761 (August 3, 2001) (SR-NYSE-2001-08) (order 
approving amendments to NYSE Rule 36.30).
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2. SLPs
    An SLP registered in one or more Nasdaq Securities must fulfill its 
responsibilities and duties for those securities in accordance with all 
applicable Exchange rules, including, but not limited to, Rule 107B-
NYSE Amex Equities. The SLP quoting requirements for Nasdaq Securities 
shall be the same as for securities listed on the Exchange.

J. Derivative Securities Products

    The Exchange also proposes some specific additional provisions that 
will apply to ETFs that are ``new derivative securities products'' 
traded pursuant to Rule 19b-4(e) under the Act.\25\
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    \25\ 17 CFR 240.19b-4(e).
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    For each such ETF, the Exchange must file a Form 19b-4(e) with the 
Commission. In addition, the Exchange will distribute an information 
circular prior to the commencement of trading in each such product that 
generally includes the same information as contained in the information 
circular provided by the UTP Listing Market for the product, including: 
(a) The special risks of trading the new product; (b) the Exchange 
rules that will apply to the new product, including Rule 405- NYSE Amex 
Equities; (c) information about the dissemination of the value of the 
underlying assets or indexes; and (d) the risks of trading outside of 
the regular trading session for the product due to the lack of 
calculation or dissemination of the value of the underlying assets or 
index, the intra-day indicative value, or a similar value.
    Members and member organizations that trade these ETFs will be 
subject to the prospectus delivery requirements of the Securities Act 
of 1933, unless the product is the subject of an order by the 
Commission exempting the product from certain prospectus delivery 
requirements under Section 24(d) of the Investment Company Act of 1940 
or the product is not otherwise subject to prospectus delivery 
requirements under the Securities Act of 1933. As a result, members and 
member organizations will be required to provide all purchasers of such 
an ETF with a written description of the terms and characteristics of 
the product at the time confirmation of the first transaction in the 
product is delivered to the purchaser. In addition, members and member 
organizations will be required to include a written description with 
any sales material relating to the product that they provide to 
customers or the public. Any other written materials provided by a 
member or member organization to customers or the public making 
specific reference to the ETF as an investment vehicle must include a 
statement that such materials are available.
    Members or member organizations carrying omnibus accounts for non-
members will be required to inform non-members that execution of an 
order to purchase an ETF for the omnibus account will be deemed to 
constitute agreement by the non-member to make such written description 
available to its customers on the same terms as are directly applicable 
to members and member organizations under this Rule. Upon request of a 
customer, a member or member organization shall also provide a 
prospectus for the particular product.
    To accommodate the trading of ETFs that qualify under this rule, 
the Exchange also proposes additional requirements for trading halts. 
If a temporary interruption occurs in the calculation or wide 
dissemination of the intraday indicative value, the value of the 
underlying index, portfolio or instrument, or similar value of a 
product and the UTP Listing Market halts trading in the product, the 
Exchange, upon notification by the UTP Listing Market of such halt due 
to such temporary interruption, shall also immediately halt trading in 
that product.
    If the interruption in the calculation or wide dissemination of the 
intraday indicative value, the value of the underlying index, portfolio 
or instrument, or similar value continues as of the commencement of 
trading on the Exchange on the next business day, the Exchange shall 
not commence trading of the product on that day. If the interruption in 
the calculation or wide dissemination of the intraday indicative value, 
the value of the underlying index, portfolio or instrument, or similar 
value continues, the Exchange may resume trading in the product only if 
calculation and wide dissemination of the intraday indicative value, 
the value of the underlying index, portfolio or instrument, or similar 
value resumes or trading in the product resumes on the UTP Listing 
Market.
    For an ETF where a net asset value or disclosed portfolio is 
disseminated, the Exchange will immediately halt trading in such 
product upon notification by the UTP Listing Market that the net asset 
value or disclosed portfolio is not being disseminated to all market 
participants at the same time. The Exchange may resume trading in the 
product only when dissemination of the net asset value or disclosed 
portfolio to all market participants at the same time resumes or 
trading in the product resumes on the UTP Listing Market.
    In addition, the Exchange will enter into a comprehensive 
surveillance sharing agreement with any market trading components of 
the index or portfolio on which the product is based to the same extent 
as the UTP Listing Market's rules require the UTP Listing Market to 
enter into a comprehensive surveillance sharing agreement with such 
markets.

K. Off-Hours Trading

    The Exchange proposes to amend the definition of ``aggregate-price 
order'' under Rule 900-NYSE Amex Equities to accommodate trading of 
Nasdaq Securities in the Off-Hours Trading Facility. Nasdaq Securities 
will be accepted by the Exchange's Off-Hours Trading Facility as part 
of an aggregate-price order, or as a closing-price order entered to 
offset a transaction made in error, as those terms are defined under 
Rule 900-NYSE Amex Equities.

L. LRPs

    In its original proposal, the Exchange proposed to modify the rules 
developed for its primary market to add values used to calculate LRPs 
for Nasdaq Securities traded on the Exchange. However, in Amendment No. 
3, NYSE Arca revised the proposal to provide that LRPs would not apply 
to Nasdaq Securities.

M. Trading Ahead of Customer Limit Orders and Customer Market Orders

    Proposed Rules 513- and 514-NYSE Amex Equities prescribe limits on 
proprietary trading by a member or member organization holding an 
unexecuted customer order in a Nasdaq Security. Generally, that member 
or member organization would not be permitted to execute a proprietary 
trade for that security at a price that would

[[Page 41269]]

satisfy the customer's order without executing the customer's order at 
that price. These rules are based on substantially similar existing 
FINRA rules and interpretations that prohibit trading ahead of customer 
orders.\26\
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    \26\ See FINRA/NASD Interpretive Material (IM) 2110-2 (Trading 
Ahead of Customer Limit Order) and FINRA/NASD Rule 2111 (Trading 
Ahead of Customer Market Orders).
---------------------------------------------------------------------------

N. Trading Halts

    Generally, as prescribed in proposed Rule 515-NYSE Amex Equities, 
the Exchange will follow all applicable NYSE Amex Equities Rules 
governing halts or suspensions, for both regulatory and/or non-
regulatory purposes, of the trading of Nasdaq Securities on the 
Exchange, including Rules 51-, 80B-, 80C-, 123D-, and 510-NYSE Amex 
Equities.
    In addition, the Exchange will halt or suspend trading in a Nasdaq 
Security when trading in that security has been halted or suspended by 
the UTP Listing Market for regulatory reasons in accordance with its 
rules and/or the UTP Plan. The Exchange will also halt or suspend 
trading in a Nasdaq Security when the authority under which the 
security trades on the Exchange or the UTP Listing Market has been 
revoked. This can occur when the Nasdaq Security is no longer 
designated as an ``eligible security'' pursuant to the UTP Plan or is 
no longer listed by the UTP Listing Market. Also, if the Exchange has 
removed a Nasdaq Security from dealings, trading will be halted or 
suspended.
    If trading of a Nasdaq Security is halted or suspended pursuant to 
proposed Rule 515-NYSE Amex Equities, trading of the affected security 
on the Exchange will resume in accordance with the procedures of 
applicable NYSE Amex Equities rules, including Rule 508-NYSE Amex 
Equities, the rules of the UTP Listing Market, and/or the UTP Plan. Any 
orders for a Nasdaq Security that are unexecuted at the time trading is 
halted on the Exchange shall be cancelled, and the Exchange shall not 
accept any new orders for the affected security for the duration of the 
halt.

O. Reporting and Recordkeeping

    Under the Exchange's current rules, members and member 
organizations are required to record and maintain certain details of an 
order in an electronic order tracking system (``OTS''). Additionally, 
members and member organizations that act as Floor brokers must record 
and maintain certain details of an order in the Exchange's Front-End 
System Capture (``FESC''). Currently, most of the Exchange's members 
and member organizations are FINRA members, and FINRA requires that any 
order in a Nasdaq-listed security by a member be reported to OATS, 
regardless of where the order is executed. According to the Exchange, 
although OATS, OTS, and FESC contain substantially the same order 
information, the data are in different formats and the systems are not 
directly compatible.
    To overcome this technical obstacle, the Exchange proposed Rule 
516-NYSE Amex Equities. This rule would exempt Exchange members or 
member organizations that are also FINRA members and subject to OATS 
reporting \27\ from the requirements of Rules 123- and 132B-NYSE Amex 
Equities. This provision is designed to assist dual NYSE Amex/FINRA 
members and member organizations that intend to enter and/or execute 
orders in Nasdaq Securities on both the Exchange and other markets.
---------------------------------------------------------------------------

    \27\ See FINRA Rule 7400 (``Order Audit Trail System'').
---------------------------------------------------------------------------

    For dual NYSE Amex/FINRA members, FINRA's OATS rules will apply to 
an order in a Nasdaq Security up to when it is routed to the Exchange. 
At that point, if the order is transmitted to a Floor broker via an 
Exchange system, the Exchange's OTS and FESC requirements will apply to 
the order and capture its subsequent handling and execution on the 
Exchange.\28\ All Exchange-only, non-FINRA members or member 
organizations will be subject to the Exchange's OTS and FESC 
requirements exclusively throughout the handling of an order for a 
Nasdaq Security.
---------------------------------------------------------------------------

    \28\ The Exchange has sought and received interpretive guidance 
from FINRA that FINRA Rule 7440(c)(6) exempts from FINRA's OATS 
requirements those orders in Nasdaq Securities received by a Floor 
broker that are first routed to the Exchange through Exchange 
systems, such as the Common Customer Gateway. See Letter from Brant 
K. Brown, Associate General Counsel, FINRA, to Claudia Crowley, NYSE 
Regulation, Inc., dated May 21, 2010 (filed with the Commission as 
Exhibit 3 to Partial Amendment No. 2 to SR-NYSE-2010-31, dated June 
21, 2010).
---------------------------------------------------------------------------

    The Exchange proposes to amend Rules 123-, 132B-, 342-, and 351-
NYSE Amex Equities, which require members and member organizations to 
provide any trading information requested by the Exchange, to specify 
that they apply to both securities listed on the Exchange and 
securities ``traded'' on the Exchange, which include Nasdaq Securities.

P. Clearance and Settlement

    Under proposed Rule 518--NYSE Amex Equities, members and member 
organizations that conduct transactions involving Nasdaq Securities on 
the Exchange will be required to comply with all applicable NYSE Amex 
Equities rules related to clearance and settlement of such 
transactions.

Q. Limitation of Liability

    The Exchange will be relying on data feeds from the UTP Listing 
Market for the trading of Nasdaq Securities. As a result, the Exchange 
proposes to include a specific provision limiting liability for any 
loss, damage, claim, or expense arising from any inaccuracy, error, 
delay, or omission of any data regarding Nasdaq Securities, including, 
but not limited to, the collection, calculation, compilation, 
reporting, or dissemination of any Nasdaq Security Information, as 
defined in Rule 522--NYSE Amex Equities, except as provided in Rules 
17- and 18- NYSE Amex Equities. In addition, the Exchange also 
expressly disclaims making any express or implied warranties with 
respect to any Nasdaq Security, any Nasdaq Security Information, or the 
underlying index, portfolio, or instrument that is the basis for 
determining the component securities of an ETF.

R. Jurisdiction

    Rule 2A(b)--NYSE Amex Equities currently provides that the Exchange 
has jurisdiction to approve listings applications for securities 
admitted to dealings on the Exchange and may also suspend or remove 
such securities from trading. The Exchange proposes to amend this rule 
to include the admission of Nasdaq Securities to dealings on the 
Exchange on a UTP basis.

S. Proposed Amendments to Non-NYSE Amex Equities Rule 476A

    The Exchange proposes to amend Non-NYSE Amex Equities Rule 476A 
Part 1A to include certain of the proposed NYSE Amex Equities Rule 500 
Series in the Exchange's Minor Rule Violation Plan (``MRVP''). Included 
are:
     Rule 502--NYSE Amex Equities prohibition on making a bid, 
offer, or transaction, or routing an order, for a Nasdaq Security on or 
from Exchange systems before 9:30 a.m. or after the close of the Off-
Hours Trading session.
     Rule 504(b)(5)--NYSE Amex Equities requirement for a DMM 
Unit registered in a Nasdaq Security that is an ETF to report the 
listed concentration measures.
     Rule 504(b)(6)--NYSE Amex Equities requirement to commit 
staff for the trading of NYSE-listed securities separate from that for 
the trading of Exchange-listed securities and/or Nasdaq Securities and 
prohibition on

[[Page 41270]]

trading NYSE-listed securities together with Exchange-listed securities 
and/or Nasdaq Securities at the same time.
     Rule 508(a)(2)--NYSE Amex Equities requirement for a DMM 
Unit to open trading in Nasdaq Securities at 9:30 a.m. or as soon 
thereafter as possible.
     Rule 508(b)(2)--NYSE Amex Equities requirements for 
closing a Nasdaq Security in a manual or slow market.
     Rule 509(a)--NYSE Amex Equities requirements for DMM 
Units.
     Rule 509(b)--NYSE Amex Equities requirements for DMM 
communications from the Floor.
     Rule 510(c)--NYSE Amex Equities requirements for 
dissemination and distribution of information for Nasdaq Securities 
that are derivative securities products.
     Rule 516--NYSE Amex Equities requirements for reporting 
and recordkeeping of transactions in Nasdaq Securities.
     Rule 518--NYSE Amex Equities requirements for clearance 
and settlement of transactions in Nasdaq Securities.
    Violations of these Rules will be subject to the fine schedule in 
Rule 476A.\29\
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    \29\ For individuals, first offenses may be charged $500, second 
offenses may be charged $1,000, and subsequent offenses may be 
charged $2,500. For member firms, first offenses may be charged 
$1,000, second offenses may be charged $2,500, and subsequent 
offenses may be charged $5,000.
---------------------------------------------------------------------------

T. Amendment No. 2

    In Amendment No. 2, the Exchange eliminated proposed Rules 513- and 
514-NYSE Amex Equities, regarding prohibitions on proprietary trading 
ahead of customer orders, from the proposed MRVP. Also in Amendment No. 
2, the Exchange clarified that it has received interpretive guidance 
from FINRA regarding OATS recording and reporting obligations for 
Exchange Floor brokers.\30\
---------------------------------------------------------------------------

    \30\ See supra note 28.
---------------------------------------------------------------------------

U. Amendment No. 3

    In Amendment No. 3, the Exchange revised the proposal to: (1) 
Clarify that, until the implementation of its ``trading-in-shares,'' 
odd-lot orders in Nasdaq Securities that are received by the Exchange 
prior to the opening of trading in those securities on the Exchange 
will be held and will not be executed until the first round-lot 
transaction in each particular security; and (2) clarifying that 
trading in Nasdaq Securities will reopen following a trading halt, 
suspension, or pause in the same manner that trading opens at the 
beginning of the trading day (i.e., the DMM Unit publishes a quote); 
(3) amend proposed Rule 509(a)--NYSE Amex Equities to correct a 
drafting error, and clarify that a DMM Unit must maintain a continuous 
two-sided quote with reasonable size; (4) delay implementation of the 
certain provisions concerning PPPs; (5) remove the application of LRPs 
to trading in Nasdaq Securities; (6) add new Rule 508(a)(3)--NYSE Amex 
Equities to the Exchange's MRVP under Rule 476A; (7) incorporate new 
Rule 80C--NYSE Amex Equities, which governs trading pauses, into 
proposed Rule 515--NYSE Amex Equities; and (8) provide that DMMs do not 
need Floor Official approval for trading halts of Nasdaq Securities 
under Rule 123D--NYSE Amex Equities.

III. Discussion and Commission's Findings

    After careful consideration, 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.\31\ In particular, the Commission finds that the proposed 
rule change is consistent with: (1) Section 6(b)(5) of the Act,\32\ in 
that it is designed 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; (2) Section 11A(a)(1) of the 
Act,\33\ in that it seeks to ensure the economically efficient 
execution of securities transactions and fair competition among brokers 
and dealers and among exchange markets; and (3) Section 12(f) of the 
Act,\34\ which governs the trading of securities pursuant to UTP 
consistent with the maintenance of fair and orderly markets, the 
protection of investors and the public interest, and the impact of 
extending the existing markets for such securities.
---------------------------------------------------------------------------

    \31\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \32\ 15 U.S.C. 78f(b)(5).
    \33\ 15 U.S.C. 78k-1(a)(1).
    \34\ 15 U.S.C. 78l(f).
---------------------------------------------------------------------------

    Under this proposal, Nasdaq Securities will trade on the Exchange 
pursuant to rules governing the trading of Exchange-listed securities 
that previously have been approved by the Commission.\35\ NYSE Amex is 
making certain minor modifications to the operation of these rules, and 
adding certain new rules, to accommodate the trading of Nasdaq 
Securities on a UTP basis. The Commission is approving all of these 
modifications and additions described in the proposed rule change, 
although only certain aspects of the proposal are highlighted in the 
following discussion.
---------------------------------------------------------------------------

    \35\ See Securities Exchange Act Releases No. 58705 (October 1, 
2008), 73 FR 58995 (October 8, 2008) (SR-Amex-2008-63) and 59022 
(November 26, 2008), 73 FR 73683 (December 3, 2008) (SR-NYSEALTR-
2008-10).
---------------------------------------------------------------------------

A. Benefits and Obligations of Market Makers

    In its approval of NYSE's new market model pilot program, the 
Commission recognized that the participation of market makers in 
exchange markets may benefit public customers by promoting more liquid 
and efficient trading, and that an exchange may legitimately confer 
benefits on market participants willing to accept substantial 
responsibilities to contribute to market quality.\36\ While the rules 
of an exchange may confer special or unique benefits to certain types 
of participants, they also must ensure, among other things, that 
investors and the public interest are protected.\37\ In addition, such 
rewards must not be disproportionate to the services provided.\38\
---------------------------------------------------------------------------

    \36\ See Securities Exchange Act Release No. 58845 (October 24, 
2008), 73 FR 64379, 64388 (October 29, 2008) (SR-NYSE-2008-46).
    \37\ See 15 U.S.C. 78f(b)(5).
    \38\ See Securities Exchange Act Release No. 58092 (July 3, 
2008), 73 FR 40144, 40148 (July 11, 2008) (``Market makers can play 
an important role in providing liquidity to the market, and an 
exchange can appropriately reward them for that as well as the 
services they provide to the exchange's market, so long as the 
rewards are not disproportionate to the services provided.'') 
(citation omitted).
---------------------------------------------------------------------------

    In considering NYSE Amex's proposal to permit trading of Nasdaq 
Securities on a UTP basis based on the new market model trading rules 
used by NYSE and NYSE Amex for their listed equity securities, we have 
considered whether the rewards granted to DMMs in Nasdaq Securities are 
commensurate with their obligations. The proposed obligations and 
benefits of DMMs in Nasdaq Securities closely track those applicable to 
DMMs in listed equities, which the Commission has approved on a pilot 
basis. Proposed Rule 509--NYSE Amex Equities requires a DMM Unit 
registered in one or more Nasdaq Securities to comply with all rules 
that govern DMM conduct or trading (subject to a few modifications, 
discussed below), including Rule 104--NYSE Amex Equities (``Dealings 
and Responsibilities of DMMs''), which sets forth the obligations of 
DMMs for Exchange-listed securities. Thus, a DMM in Nasdaq Securities 
would have an affirmative obligation to engage in a course of

[[Page 41271]]

dealings for its own account to assist in the maintenance of a fair and 
orderly market insofar as reasonably practicable.\39\ In addition, a 
DMM in Nasdaq Securities would be required to facilitate trading 
(including supplying liquidity as needed), during re-openings following 
a trading halt, when a ``gap'' quote procedure is being used, and when 
a manual block trade is being executed.\40\ Similarly, pursuant to 
Proposed Rule 509--NYSE Amex Equities, the rules which grant benefits, 
such as parity with Floor broker and customer interest \41\ and the 
CCS, to DMMs would be applicable to DMMs in Nasdaq Securities.
---------------------------------------------------------------------------

    \39\ See Rule 104(a)--NYSE Amex Equities.
    \40\ See Rule 104(a)(2), (4), and (5)--NYSE Amex Equities.
    \41\ See Rule 72(c)--NYSE Amex Equities.
---------------------------------------------------------------------------

    As discussed above,\42\ the obligations proposed for DMMs in Nasdaq 
Securities are slightly different that those that apply to Exchange 
DMMs and NYSE DMMs in listed securities. First, in lieu of the tiered 
quoting requirement (5% and 10%) currently in place for DMMs in listed 
securities, DMMs in Nasdaq Securities would be required to maintain a 
bid or offer at the NBB or NBO in each assigned Nasdaq Security an 
average of at least 10% of the time during the regular business hours 
of the Exchange for each calendar month. As clarified in Amendment No. 
3, DMM Units will be required to maintain a continuous two-sided quote 
with reasonable size in their registered Nasdaq Securities. Second, 
Depth Guidelines and PPPs, which serve as guidelines that identify the 
price at or before which a DMM Unit is expected to re-enter the market 
after effecting a Conditional Transaction,\43\ similar to those 
applicable to listed securities on NYSE Amex,\44\ would apply to DMMs 
in Nasdaq Securities, but would not be operative until 18 weeks after 
the approval of the proposed rule change by the Commission in order to 
give the Exchange time to develop and phase in appropriate guidelines 
for Nasdaq Securities. Finally, because the proposed rules do not 
provide for opening and closing auctions in Nasdaq Securities, DMMs in 
Nasdaq Securities would not be responsible for facilitating openings 
and closings, as DMMs in listed equities are.\45\
---------------------------------------------------------------------------

    \42\ See supra notes 18-19 and accompanying text.
    \43\ The term ``Conditional Transaction'' is defined under Rule 
104(h)(i) as ``a DMM's transaction in a security that establishes or 
increases a position and reaches across the market to trade as the 
contra-side to the Exchange published bid or offer.''
    \44\ See Rules 104(f)(ii)--and (iii)--NYSE Amex Equities.
    \45\ However, the Exchange has represented that, if it were to 
amend its rules to provide for openings and closing in Nasdaq 
Securities, a DMM would be responsible for facilitating openings and 
closings in its assigned securities.
---------------------------------------------------------------------------

    After careful consideration, the Commission finds that the proposed 
rules relating to DMM benefits and duties in trading Nasdaq Securities 
on the Exchange pursuant to UTP are consistent with the Act. We note 
that this proposal is very similar to the previously-approved new 
market model pilot program currently operated by NYSE and NYSE Amex in 
listed securities (particularly with respect to DMM obligations and 
benefits).\46\ In addition, like the new market model, this proposal is 
subject to a pilot program scheduled to end on September 30, 2010. 
Finally, the Commission believes that differences between the proposed 
rules for DMMs in Nasdaq Securities and those in effect for listed 
securities on NYSE and NYSE Amex are reasonable and consistent with the 
Act. While DMMs are not responsible for opening and closing auctions, 
the DMM quoting obligation is 10% in all securities, compared to 5% in 
more active securities and 10% in less active securities for DMMs in 
listed equities. Moreover, we note that the quoting obligation for 
Nasdaq Securities would apply to each assigned Nasdaq Security, rather 
than to the aggregated average of all the DMM's more-active or all the 
DMM's less-active assigned securities, as is the case for DMMs in 
listed securities. Finally, the delay in providing depth guidelines and 
implementing PPPs will allow the Exchange to obtain trading data for 
Nasdaq Securities to determine where the levels should be set, and 
appears to be of reasonable duration. In light of the foregoing, the 
Commission believes that the proposed rules regarding DMM benefits and 
obligations are consistent with the Act.
---------------------------------------------------------------------------

    \46\ See Securities Exchange Act Release No. 58845, supra note 
36, at 64387-89.
---------------------------------------------------------------------------

B. Nasdaq Securities Assignments

1. DMMs and SLP Assignments
    The Exchange's Nasdaq Securities Liaison Committee will assign 
Nasdaq Securities to DMM Units for trading on the Exchange. No more 
than one DMM Unit will be assigned to any Nasdaq Security and a member 
organization will not be permitted to be registered as both the DMM 
Unit and an SLP for the same Nasdaq Security. Existing NYSE Amex 
Equities DMM Units will be automatically eligible for the assignment of 
Nasdaq Securities, so long as they qualify in accordance with the 
applicable NYSE Amex Equities rules.\47\
---------------------------------------------------------------------------

    \47\ See supra note 7 and accompanying text.
---------------------------------------------------------------------------

    The Nasdaq Securities Liaison Committee will assign one or more 
SLPs to Nasdaq Securities for trading on the Exchange. NYSE Amex 
Equities members and member organizations may apply to be SLPs in 
Nasdaq Securities and will be eligible for the assignment of Nasdaq 
Securities in accordance with applicable NYSE Amex Equities Rules.\48\ 
Like their counterparts in listed equities, SLPs in Nasdaq Securities 
will not be required to have a presence on the Trading Floor, and most 
will operate remotely. Therefore, the Exchange has concluded that the 
limitations in place regarding assignment of ETFs and their component 
securities to DMM Units \49\ are unnecessary for SLPs.
---------------------------------------------------------------------------

    \48\ See Notice, supra note 3, 75 FR at 20405.
    \49\ See proposed Rule 504(b)(5)--NYSE Amex Equities.
---------------------------------------------------------------------------

    The Commission finds that this aspect of the proposal is consistent 
with the Act. These proposed rules are substantially similar to 
existing rules for the assignment of securities to DMMs and SLPs in 
listed equities on NYSE and NYSE Amex that we have previously 
approved.\50\
---------------------------------------------------------------------------

    \50\ See, e.g., Securities Exchange Act Releases No. 58845 
(October 24, 2008), 73 FR 64379 (October 29, 2008) (SR-NYSE-2008-
46); and 58877 (October 29, 2008), 73 FR 65904 (November 6, 2008) 
(SR-NYSE-2008-108).
---------------------------------------------------------------------------

2. QQQ and Component Securities
    As part of this proposed rule change, NYSE Amex proposes 
requirements governing the assignment of the QQQs and its component 
securities.\51\ Under proposed Rule 504--NYSE Amex Equities, a DMM Unit 
may be registered in both the QQQs and a component security or 
securities provided that, at the time of assignment, no single 
component in which the DMM Unit is registered exceeds 10% of the index 
or portfolio underlying the QQQs, and all components in which the DMM 
Unit is registered do not in the aggregate exceed 20% of the index or 
portfolio underlying the QQQs.\52\ The Exchange will review its rules 
governing the allocation of the QQQs and component securities in the 
event that its market share of the Nasdaq Securities that it trades 
exceeds 10% of the consolidated Tape C aggregate average daily trading 
volume for these securities. In addition,

[[Page 41272]]

the Exchange will also require the DMM Unit to have policies and 
procedures to detect and deter violations of the Act including 
manipulation, front-running, and wash sales.\53\
---------------------------------------------------------------------------

    \51\ See Notice, supra note 3, 75 FR at 20403-05.
    \52\ Proposed Rule 504--NYSE Amex Equities also requires the DMM 
Unit registered in the QQQs to calculate, monitor, and report these 
components and percentages on a monthly basis. If these levels are 
exceeded, the DMM Unit will be required to report this to the 
Exchange as soon as possible. The Exchange also represented that it 
will calculate and monitor these levels and report them to the 
Nasdaq Liaison Committee. See Notice, supra note 3, 75 FR at 20403.
    \53\ With respect to the potential for wash sales, the Exchange 
has represented that virtually all DMM interest is entered through 
its algorithmic trading system (``SAPI''), and that the SAPI 
prevents trading interest of the DMM Unit from executing against its 
own quotes or its other trading interest on the Exchange. While a 
DMM Unit could enter a proprietary order in one of its assigned 
securities through a system other than the SAPI, DMM Units are 
required to have policies and procedures in place that are 
reasonably designed to prevent violations of Exchange rules and the 
federal securities laws, including the prohibition on wash sales 
pursuant to Section 9 of the Act, 15 U.S.C. 78i.
---------------------------------------------------------------------------

    The Commission finds that the proposal relating to the assignment 
of QQQs and its component securities is consistent with Section 6(b)(5) 
of the Act.\54\ The Commission notes that the current proposal applies 
to only one ETF, the QQQs, which the Exchange has represented meets the 
composition and concentration measures to be classified as a broad-
based ETF.\55\ The Commission believes that, when the securities 
underlying an ETF consist of a number of liquid and well-capitalized 
stocks, the likelihood that a market participant will be able to 
manipulate the price of the ETF is reduced. In addition, the Commission 
notes that the Exchange will require the DMM Unit in the QQQs to 
implement policies and procedures to detect and deter inappropriate 
access to information about pending block trades from other business 
units of the DMM in the component securities, potential front-running, 
manipulation, intentional wash sales, and of other violations of 
Section 9 of the Act.\56\ The Commission also notes that the DMM will 
be required to conduct surveillance to detect patterns of trading that 
are indicative of these violations.
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78f(b)(5).
    \55\ The Commission has previously approved side-by-side trading 
and integrated market-making for broad-based ETFs and related 
options, in part because the individual components of broad-based 
ETFs are sufficiently liquid and well-capitalized, and the 
composition of the ETF as a whole does not focus on one security or 
group of securities. See Securities Exchange Act Release No. 46213 
(July 16, 2002), 67 FR 48232 (July 23, 2002) (SR-Amex-2002-21).
    \56\ Such policies and procedures will have to meet the 
requirements of Rule 98-NYSE Amex Equities. See Notice, supra note 
3, 75 FR at 20405 n.16.
---------------------------------------------------------------------------

C. Trading Posts for Nasdaq Securities

    The Exchange proposes to amend Rule 103B--NYSE Amex Equities to 
permit Exchange-listed securities and Nasdaq Securities to trade on 
posts throughout the Trading Floor. Under the proposed rule, a DMM Unit 
that is registered to trade NYSE and NYSE Amex-listed securities, as 
well as Nasdaq Securities, could trade all these securities at the same 
post. However, NYSE Amex-listed and/or traded securities, such as 
Nasdaq Securities, would be assigned to specific panels. The DMM Unit 
would be required to commit staff to trade NYSE-listed securities that 
are separate from the staff committed to trade NYSE Amex-listed or 
traded securities at any time during the trading day. The Commission 
believes that these arrangements are reasonable and consistent with the 
Act.

D. Limits on Proprietary Trading By Members Holding Unexecuted Orders 
in Nasdaq Securities

    Proposed Rules 513-- and 514--NYSE Amex Equities provide that a 
member firm handling an unexecuted customer order in a Nasdaq Security 
may not execute a proprietary trade for that security at a price that 
would satisfy the customer's order, without executing the customer's 
order at that price. The Commission believes that these proposed rules 
appear reasonably designed to protect customer orders, and thus should 
benefit investors and the public interest. These rules are 
substantially similar to existing FINRA rules and interpretations that 
prohibit trading ahead of customer orders,\57\ and thus are consistent 
with the Act.
---------------------------------------------------------------------------

    \57\ See FINRA/NASD Interpretive Material (IM) 2110-2 (Trading 
Ahead of Customer Limit Order) and FINRA/NASD Rule 2111 (Trading 
Ahead of Customer Market Orders).
---------------------------------------------------------------------------

E. Reporting and Recordkeeping

    The Commission finds that the proposed audit trail requirements are 
consistent with the Act. Generally, the proposed rules subject members 
and member organizations trading Nasdaq Securities on the Exchange to 
the Exchange's audit trail requirements.
    Most of the Exchange's members and member organizations also are 
FINRA members. FINRA requires all trades in Nasdaq-listed securities by 
its members, regardless of the market, to be reported to OATS. Some 
members and member organizations may wish to enter and/or execute 
orders in Nasdaq Securities on both the Exchange and other markets, 
which would require them to comply with the Exchange's audit trail 
requirements and OATS. Additionally, because Nasdaq-listed securities 
have not previously traded on the Exchange, some members and member 
organizations, particularly Floor brokers that have previously only 
conducted transactions in Exchange-listed securities, do not have OATS-
compliant systems and procedures.
    Proposed Rule 516--NYSE Amex Equities eliminates duplicative 
reporting by exempting from the Exchange's audit trail provisions a 
member or member organization that is a FINRA member subject to OATS 
reporting. This exception is designed to spare members and member 
organizations that wish to trade Nasdaq Securities on multiple markets 
(including the Exchange) the unnecessary expense and/or delay 
associated with converting to OATS-compliant systems.\58\ 
Notwithstanding that exception, a Floor broker that receives an order 
in a Nasdaq Security from another member must comply with the 
Exchange's audit trail requirements, regardless of FINRA membership 
status and the applicability of an OATS reporting obligation. The 
Exchange has represented that it will have full access to a complete 
audit trail and there will be no gap in regulatory oversight.\59\
---------------------------------------------------------------------------

    \58\ The Exchange states that, although OATS contains 
substantially the same order information as the Exchange's 
electronic order tracking system (``OTS'') and the Exchange's Front-
End System Capture (``FESC''), OATS data are in a different format 
from the data recorded by OTS and FESC, and the systems are not 
directly compatible. See Notice, supra note 3, 75 FR at 20410-11.
    \59\ See Notice, supra note 3, 75 FR at 20411.
---------------------------------------------------------------------------

F. Trading of New Derivative Securities Products

    The Exchange's proposed rules governing the trading of new 
derivative securities products pursuant to Rule 19b-4(e) under the Act 
\60\ are based on similar rules adopted by other national securities 
exchanges.\61\ The Commission believes that proposed Rule 510(d)--NYSE 
Amex Equities is reasonably designed to prevent trading in new 
derivative securities products when transparency is impaired. In 
addition, proposed Rule 510(e)--NYSE Amex Equities requires that the 
Exchange enter into a comprehensive surveillance sharing agreement 
(``CSSA'') with markets trading components of the index or portfolio on 
which the new derivative securities product is based to the same extent 
as the listing exchange's rules require the listing market to enter 
into a CSSA with such markets. This provision should assist the 
Exchange in fulfilling its regulatory obligations under Section 
19(g)(1) of the Act.\62\
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    \60\ 17 CFR 240.19b-4(e).
    \61\ See, e.g., Securities Exchange Act Release No. 57448 (March 
6, 2008), 73 FR 13597 (March 13, 2008) (SR-NSX-2008-05) (order 
approving NSX Rule 15.9); Securities Exchange Act Release No. 59663 
(March 31, 2009), 74 FR 15552 (April 6, 2009) (SR-Nasdaq-2009-018) 
(notice of filing and immediate effectiveness for Nasdaq Rule 5740).
    \62\ 15 U.S.C. 78s(g)(1).

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[[Page 41273]]

G. Additions to the MRVP

    The Commission further finds that the proposal is consistent with 
Sections 6(b)(1) and 6(b)(6) of the Act,\63\ which require that the 
rules of an exchange enforce compliance with, and provide appropriate 
discipline for, violations of Commission and Exchange rules. These 
proposed changes to the MRVP should strengthen the Exchange's ability 
to carry out its oversight and enforcement responsibilities as a self-
regulatory organization in cases where full disciplinary proceedings 
are unsuitable in view of the minor nature of the particular violation. 
Therefore, the Commission finds that the proposal is consistent with 
the public interest, the protection of investors, or otherwise in 
furtherance of the purposes of the Act, as required by Rule 19d-1(c)(2) 
under the Act,\64\ which governs minor rule violation plans.
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    \63\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
    \64\ 17 CFR 240.19d-1(c)(2).
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    In approving this proposed rule change, the Commission in no way 
minimizes the importance of compliance with Exchange rules and all 
other rules subject to the imposition of fines under the MRVP. The 
Commission believes that the violation of any self-regulatory 
organization's rules, as well as Commission rules, is a serious matter. 
However, the MRVP provides a reasonable means of addressing rule 
violations that do not rise to the level of requiring formal 
disciplinary proceedings, while providing greater flexibility in 
handling certain violations. The Commission expects that the Exchange 
will continue to conduct surveillance with due diligence and make a 
determination based on its findings, on a case-by-case basis, whether a 
fine of more or less than the recommended amount is appropriate for a 
violation under the MRVP or whether a violation requires formal 
disciplinary action under NYSE Amex Rule 476.

H. Accelerated Approval

    Amendment No. 2 did not materially alter the proposal, which had 
already undergone a full notice period, during which no comments were 
received. In Amendment No. 2, the Exchange revised the proposal to 
remove two rules from the Exchange's MRVP, and provided clarification 
on FINRA's guidance regarding the OATS recording and recordkeeping 
obligations for NYSE Amex Floor brokers. In Amendment No. 3, the 
Exchange revised the proposal to provide that LRPs would not be used 
for trading in Nasdaq Securities, and made certain minor changes to the 
proposal that do not raise material issues. The Commission finds that 
good cause exists, consistent with Section 19(b) of the Act,\65\ for 
approving the proposed rule change, as modified by Amendment Nos. 1, 2, 
and 3 prior to the thirtieth day after publication of notice of filing 
of Amendment Nos. 2 and No. 3 in the Federal Register.
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    \65\ 15 U.S.C. 78s(b).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment Nos. 2 and No. 3, including whether 
those amendments are 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-NYSEAmex-2010-31 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-NYSEAmex-2010-31. 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 
available publicly. All submissions should refer to File Number SR-
NYSEAmex-2010-31 and should be submitted on or before August 5, 2010.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\66\ and Rule 19d-1(c)(2) under the Act,\67\ that the proposed rule 
change, as modified by Amendment Nos. 1, 2 and 3 thereto (SR-NYSEAmex-
2010-31), be, and it hereby is, approved and declared effective.
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    \66\ 15 U.S.C. 78s(b)(2).
    \67\ 17 CFR 240.19d-1(c)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\68\
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    \68\ 17 CFR 200.30-3(a)(12) and 200.30-3(a)(44).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-17274 Filed 7-14-10; 8:45 am]
BILLING CODE 8010-01-P