Document ID: SEC-2012-0936-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Amex LLC
Posted Date: 2012-06-13T04:00Z

[Federal Register Volume 77, Number 114 (Wednesday, June 13, 2012)]
[Notices]
[Pages 35444-35446]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14338]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67155; File No. SR-NYSEAmex-2012-22]

Self-Regulatory Organizations; NYSE Amex LLC; Order Granting 
Approval of Proposed Rule Change Amending NYSE Amex Equities Rule 107B 
To Add a Class of Supplemental Liquidity Providers That are Registered 
as Market Makers at the Exchange

June 7, 2012.

I. Introduction

    On April 17, 2012, NYSE Amex LLC (``NYSE Amex'' or ``Exchange'') 
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 
amend NYSE Amex Equities Rule 107B to add a class of Supplemental 
Liquidity Providers (``SLP'') that are registered as market makers at 
the Exchange. The proposed rule change was published for comment in the 
Federal Register on April 23, 2012.\3\ The Commission received no 
comment letters on the proposal. This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 66820 (April 17, 2012), 
77 FR 24236 (``Notice'').
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II. Description of the Proposal

    NYSE Amex Equities Rule 107B (``Rule 107B'') was adopted as a pilot 
program in January 2010 and established a new class of off-floor market 
participants referred to as Supplemental Liquidity Providers or 
``SLPs.'' \4\ Approved Exchange member organizations are eligible to be 
an SLP. SLPs supplement the liquidity provided by Designated Market 
Makers (``DMM''). SLPs have monthly quoting requirements that may 
qualify them to receive SLP rebates, which are larger than the general 
rebate available to non-SLP market participants.\5\
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    \4\ See Securities Exchange Act Release No. 61308 (January 7, 
2010), 75 FR 2573 (January 15, 2010) (SR-NYSEAmex-2009-98). The 
pilot is currently scheduled to end on July 31, 2012.
    \5\ Rule 107B(a) requires that an SLP maintain a bid and/or an 
offer at the national best bid (``NBB'') or national best offer 
(``NBO'') averaging at least 5% of the trading day for each assigned 
security. Meeting this volume requirement will enable an SLP to 
receive the basic SLP rebate (currently $0.0032 per executed share) 
on a security-by-security basis and to maintain their SLP status.
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    To qualify as an SLP under Rule 107B(c), a member organization is 
subject to a number of conditions, including adequate trading

[[Page 35445]]

infrastructure to support SLP trading activity, quoting and volume 
performance that demonstrates an ability to meet the 5% average quoting 
requirement, and use of specified SLP mnemonics. In addition, the 
business unit of the member organization acting as an SLP must enter 
proprietary orders only and have adequate information barriers between 
the SLP unit and any of the member organization's customer, research, 
and investment-banking business. Pursuant to Rule 107B(g)(2)(A), a DMM 
may also be an SLP, but not in the same securities in which it is 
registered as a DMM.
Proposed SLP Market Makers
    The Exchange proposes to amend Rule 107B to add a category of SLPs 
that would be registered as market makers at the Exchange. As proposed, 
the term ``SLP'' would refer to member organizations that provide 
supplemental liquidity and there would be two classes of SLP. The 
existing SLP member organizations and associated requirements would 
continue unchanged and would be referred to as ``SLP-Prop.''
    The proposed new class of SLP would be referred to as ``SLMM''. 
SLMMs would have differing qualification requirements and increased 
regulatory obligations as compared to SLP-Props, but would otherwise be 
subject to the existing SLP program.
    Under the proposal, an SLP can choose to be either an SLP-Prop or 
an SLMM. The proposed SLMMs would have different qualification 
requirements, specified regulatory obligations, expanded entry of order 
requirements, and a security-by-security withdrawal ability. SLP-Props 
and SLMMs would be subject to the same application and overall program 
withdrawal process, quoting requirements, manner by which SLP 
securities are assigned, and non-regulatory penalties.
    To be approved as an SLMM, an SLMM must meet specified regulatory 
obligations, which are set forth in proposed Rule 107B(d). Failure to 
comply with these regulatory obligations could result in disciplinary 
action. First, pursuant to proposed Rule 107B(d)(1), the SLMM must 
maintain a continuous two-sided quotation in those securities in which 
the SLMM is registered to trade as an SLP (``Two-Sided Obligation''). 
As proposed, the Two-Sided Obligation applicable to SLMMs would be 
virtually identical to the market-maker two-sided obligations adopted 
by the equities markets in 2010.\6\ Second, pursuant to proposed Rule 
107B(d)(2), the SLMM would be required to maintain net capital in 
accordance with the provisions of Rule 15c3-1 under the Act, which 
specifies the capital requirements for market makers.\7\ Finally, 
pursuant to proposed Rule 107B(d)(3), the SLMM would be required to 
maintain unique mnemonics specifically dedicated to SLMM activity. Use 
of these unique mnemonics will enable SLMMs to meet their requirement 
under proposed Rule 107B(d)(1)(A) to identify their market-making 
activity to the Exchange. As proposed, such mnemonics may not be used 
for trading in securities other than SLP Securities assigned to the 
SLMM.
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    \6\ See Securities Exchange Act Release No. 63255 (Nov. 5, 
2010), 75 FR 69484 (Nov. 12, 2010) (SR-BATS-2010-025; SR-BX-2010-66; 
SR-CBOE-2010-087; SR-CHX-2010-22; SR-FINRA-2010-049; SR-NASDAQ-2010-
115; SR-NSX-2010-12; SR-NYSE-2010-69; SR-NYSEAmex-2010-96; and SR-
NYSEArca-2010-83) (order approving enhanced quoting requirements for 
market makers).
    \7\ 17 CFR 240.15c3-1. For purposes of that rule, the term 
``market maker'' is defined as ``a dealer who, with respect to a 
particular security, (i) Regularly publishes bona fide, competitive 
bid and offer quotations in a recognized interdealer quotation 
system; or (ii) furnishes bona fide competitive bid and offer 
quotations on request; and (iii) is ready, willing and able to 
effect transactions in reasonable quantities at his quoted prices 
with other brokers or dealers.'' 17 CFR 240.15c3-1(c)(8).
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    Pursuant to Rule 107B(c)(6), SLPs must currently maintain adequate 
information barriers between the SLP unit and the member organization's 
customer, research and investment-banking business. This requirement 
ensures that the orders submitted by SLPs are proprietary only, and are 
not related to any customer-facing business, including potentially 
market-making businesses. The Exchange proposes to maintain this 
requirement for SLP-Props.
    Proposed Rule 107B(i) would modify the entry of order requirements. 
SLP-Prop would continue to be required to enter proprietary orders 
only. As proposed, SLMMs would similarly be required to enter orders 
for their own account, however, they could be entered in either a 
proprietary capacity or a principal capacity on behalf of an affiliated 
or unaffiliated person. SLMM could submit SLMM quotes to the Exchange 
on behalf of customers, or other unaffiliated or affiliated persons.
    The Exchange proposes to add an additional ability for SLMMs to 
voluntarily withdraw from registration as a market maker in a 
particular security. Under proposed Rule 107B(f)(2), an SLMM may 
withdraw its registration in a security by giving written notice to the 
SLP Liaison Committee and FINRA. As proposed, the Exchange may require 
a certain minimum notice period for withdrawal, and may place such 
other conditions on withdrawal and re-registration following 
withdrawal, as it deems appropriate in the interests of maintaining 
fair and orderly markets. An SLMM that fails to give advanced written 
notice of termination to the Exchange may be subject to formal 
disciplinary action.
    Under proposed Rule 107B(h), an SLP-Prop may not also act as an 
SLMM in the same securities in which it is registered as an SLP-Prop 
and vice versa. If a member organization has more than one business 
unit, and the SLP-Prop business unit is walled off from the SLMM 
business unit, the member organization may engage in both an SLP-Prop 
and SLMM business from those different business units. Provided there 
is no coordinated trading between the SLP-Prop and SLMM business units, 
they may be assigned the same securities.

III. Discussion

    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.\8\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\9\ which requires, among other things, that 
the rules of a national securities exchange be 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, 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.
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    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that adding an additional registered market 
maker program to the Exchange will promote just and equitable 
principles of trade as it could potentially expand the number of market 
participants providing liquidity at the Exchange, to the benefit of 
investors. In particular, the proposal would allow additional market 
participants, including member organizations that are registered as 
market makers on other exchanges that engage in a customer-facing 
business, to participate in the SLP program.

[[Page 35446]]

    The proposed SLMMs would provide supplemental liquidity in addition 
to the liquidity provided by DMMs and SLP-Props, and the Exchange would 
continue to require that a DMM be registered in every security listed 
on the Exchange. Because the proposed SLMMs would be required to meet 
the Two-Sided Obligation applicable to all equities market makers, the 
Commission believes that the proposed rule change would also remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system by increasing the number of market 
participants that are required to maintain a continuous two-sided 
quotation a specified percentage away from the NBBO in the securities 
in which they are registered. Moreover, the proposed SLMM would be 
subject to other currently existing requirements.
    The Commission finds that the proposal is not unfairly 
discriminatory. Registration as an SLP-Prop or SLMM is available to all 
Exchange member organizations that satisfy the requirements of proposed 
Rule 107B(c) or (d). The Commission finds further that the proposal to 
establish procedures for the registration, withdrawal, and 
disqualification of SLMM, and the SLMM quoting requirements, are 
consistent with the requirements of Section 6(b)(5) of the Act. The 
Exchange's proposed rules provide an objective process by which a 
member organization could become a SLMM and for appropriate oversight 
by the Exchange to monitor for continued compliance with the terms of 
these provisions. The Commission also notes that these provisions are 
similar to the existing provisions that apply to the current SLP 
program.
    In addition, the Commission believes that the proposed rule change 
is consistent with the requirements of the Act because the proposed 
requirements for the SLMMs are based on existing, approved requirements 
for registered market makers on other exchanges. In addition to the 
Two-Sided Obligation, the proposed SLMMs would also be required to 
assist in the maintenance of a fair and orderly market, as reasonably 
practicable, and maintain net capital consistent with federal 
requirements for market makers.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-NYSEAmex-2012-22) be, and it 
hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14338 Filed 6-12-12; 8:45 am]
BILLING CODE 8011-01-P