Document ID: SEC-2010-1240-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Amex, Inc.
Posted Date: 2010-08-16T04:00Z

[Federal Register: August 16, 2010 (Volume 75, Number 157)]
[Notices]               
[Page 50013-50014]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16au10-121]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62667; File No. SR-NYSEAmex-2010-77]

 
Self-Regulatory Organizations; NYSE Amex, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Rule 995NY

August 9, 2010.
    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 August 2, 2010, NYSE Amex LLC (``NYSE Amex'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. NYSE Amex filed the proposed rule change as a ``non-
controversial'' proposal pursuant to Section 19(b)(3)(A) of the Act \4\ 
and Rule 19b-4(f)(6) thereunder,\5\ which renders the proposal 
effective upon filing with the Commission. 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.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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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 Rule 995NY-Prohibited Conduct, by 
adding a provision that states that the practice of unbundling an order 
is considered conduct inconsistent with just and equitable principles 
of trade. The text of the proposed rule change is available on the 
Exchange's Web site at http://www.nyse.com, on the Commission's Web 
site at http://www.sec.gov, at the Exchange, and at the Commission's 
Public Reference Room. A copy of this filing is available on the 
Exchange's Web site at http://www.nyse.com, at the Exchange's principal 
office and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Rule 995NY by 
adding subsection (d) which will expressly prohibit the splitting-up of 
an order into smaller orders; a practice also know as unbundling, or 
trade shredding. More specifically, the Exchange is proposing to add 
language to its existing rules to prohibit NYSE Amex Options Trading 
Permit Holders (``ATP Holders'') from splitting orders into multiple 
smaller orders for any purpose other than best execution.
    Unbundling, or trade shredding, is the practice of breaking up an 
order into multiple smaller orders for some purpose other than best 
execution of the order. The practice of unbundling has in the past been 
used for such purposes as improperly maximizing commissions and fees 
charged to customers, distorting trade data, or circumventing rules 
pertaining to maximum order size. In addition, the unbundling of a 
large order into several smaller orders could be done so as to affect 
the allocation of a trade among market participants pursuant to the 
allocation methodology used by the Exchange.\6\ Finally, the Exchange 
believes that the unbundling of orders generally serves no purpose to 
the customer that entered the order and may cause unnecessary delays in 
the execution of said orders.
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    \6\ For example, pursuant to NYSE Amex Options Rule 
964NY(b)(C)(iv), all orders of five contracts or less are allocated 
to a Specialist Pool. If an ATP Holder was to break up a large order 
into several smaller orders of five contracts or less, the 
Specialist Pool could unfairly garner a greater trade allocation 
than it was otherwise entitled to.
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    Pursuant to NYSE Amex Rule 476(a)(6), ATP Holders must observe high 
standards of commercial honor and just and equitable principles of 
trade. NYSE Amex would consider an ATP Holder to have engaged in 
conduct inconsistent with just and equitable principles of trade were 
they to unbundle an order which (1) Distorts fees and/or commissions to 
the detriment of a customer or the Exchange, (2) causes an unnecessary 
delay in the execution of an order, or (3) circumvents an Exchange rule 
or federal securities law, including those rules

[[Page 50014]]

pertaining to order size and trade allocation. ATP Holders engaging in 
conduct inconsistent with just and equitable principles of trade are 
subject to formal disciplinary action by the Exchange.
    NYSE Amex now proposes to adopt new Rule 995NY(d), which will 
expressly state that the Exchange considers it to be conduct 
inconsistent with just and equitable principals of trade for an ATP 
Holder to split an order into multiple smaller orders for any purpose 
other than seeking the best execution of the entire order.
    The Exchange believes that by adopting this proposed new rule, 
which serves to codify existing Exchange procedures when dealing with 
the unlawful unbundling of orders, will deter, and help to prevent this 
distortive practice, and therefore promote just and equitable 
principles of trade.
    The Exchange notes that other U.S. options exchanges have rules 
prohibiting the unbundling of orders for a variety of reasons and 
violations of these rules may be considered conduct inconsistent with 
just and equitable principles of trade.\7\
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    \7\ See International Securities Exchange Rule 723 Supplementary 
Material .01, and NASDAQ OMX PHLX Rule 1015(a)(v).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\8\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\9\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, 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. The rule is 
designed to deter, and help to prevent the distortive practice of 
unbundling, or trade shredding, and therefore promote just and 
equitable principles of trade.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \10\ and Rule 19b-4(f)(6) thereunder.\11\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires a self-regulatory organization to provide the 
Commission with 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 fulfilled this requirement.
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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.

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-NYSEAmex-2010-77 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-2010-77. 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-2010-77 and should be submitted on or before September 7, 
2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-20149 Filed 8-13-10; 8:45 am]
BILLING CODE 8010-01-P