Document ID: SEC-2011-1237-0001
Agency: sec
Document Type: Notice
Title: Temporary Exemptions: Floor Broker Operations That Handle Orders on a Manual Basis from the Automated Controls Requirement
Posted Date: 2011-08-18T04:00Z

[Federal Register Volume 76, Number 160 (Thursday, August 18, 2011)]
[Notices]
[Pages 51457-51458]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-21099]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65132]

Order Temporarily Exempting the Floor Broker Operations of 
Broker-Dealers With Market Access That Handle Orders on a Manual Basis 
From the Automated Controls Requirement of Rule 15c3-5(c)(1)(ii) and 
Rule 15c3-5(c)(2) Under the Securities Exchange Act of 1934

August 15, 2011.

I. Introduction

    Pursuant to Rule 15c3-5(f) under the Securities Exchange Act of 
1934 (``Exchange Act''),\1\ the Securities and Exchange Commission 
(``Commission''), by order, may exempt from the provisions of Rule 
15c3-5 (``Rule''), either unconditionally or on specified terms and 
conditions, any broker or dealer, if the Commission determines that 
such exemption is necessary or appropriate in the public interest, and 
is consistent with the protection of investors.\2\ As discussed below, 
the Commission temporarily is exempting the floor broker operations of 
broker-dealers with market access that handle orders on a manual basis 
(``Floor Brokers'') from the automated controls requirement of Rules 
15c3-5(c)(1)(ii) \3\ and (c)(2) \4\ until November 30, 2011.\5\
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    \1\ See 17 CFR 240.15c3-5(f).
    \2\ See also Exchange Act Section 36(a)(1), 15 U.S.C. 78mm(a)(1) 
(providing general authority for Commission to grant exemptions from 
provisions of Exchange Act and rules thereunder, provided the 
Commission makes certain required findings).
    \3\ See 17 CFR 240.15c3-5(c)(1)(ii).
    \4\ See 17 CFR 240.15c3-5(c)(2).
    \5\ On June 27, 2011, the Commission extended the compliance 
date, until November 30, 2011, for all of the requirements of Rule 
15c3-5 for fixed income securities, and the requirements of Rule 
15c3-5(c)(1)(i) for all securities. See Securities Exchange Act 
Release No. 64748 (June 27, 2011), 76 FR 38293 (June 30, 2011).
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II. Background

    On November 3, 2010, the Commission adopted Rule 15c3-5 under the 
Exchange Act.\6\ Among other things, Rule 15c3-5 requires each broker-
dealer with access to trading securities \7\ directly on an exchange or 
ATS, including a broker-dealer providing sponsored or direct market 
access to customers or other persons, and each broker-dealer operator 
of an ATS that provides access to trading securities directly on its 
ATS to a person other than a broker-dealer, to establish, document, and 
maintain a system of risk management controls and supervisory 
procedures that, among other things, is reasonably designed to (1) 
Systematically limit the financial exposure of the broker-dealer that 
could arise as a result of market access,\8\ and (2) ensure compliance 
with all regulatory requirements that are applicable in connection with 
market access.\9\ The required financial risk management controls and 
supervisory procedures must be reasonably designed to prevent the entry 
of orders that exceed appropriate pre-set credit or capital 
thresholds,\10\ or that appear to be erroneous.\11\ The regulatory risk 
management controls and supervisory procedures must also be reasonably 
designed to prevent the entry of orders unless there has been 
compliance with all regulatory requirements that must be satisfied on a 
pre-order entry basis,\12\ prevent the entry of orders that the broker-
dealers or customer is restricted from trading,\13\ restrict market 
access technology and systems to authorized persons,\14\ and assure 
appropriate surveillance personnel receive immediate post-trade 
execution reports.\15\
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    \6\ See Exchange Act Release No. 63241 (Nov. 3, 2010), 75 FR 
69792 (Nov. 15, 2010) (``Rule 15c3-5 Adopting Release'').
    \7\ Rule 15c3-5 applies to trading in all securities on an 
exchange or ATS. Id. at 69765.
    \8\ See 17 CFR 240.15c3-5(c)(1).
    \9\ See 17 CFR 240.15c3-5(c)(2).
    \10\ See 17 CFR 240.15c3-5(c)(1)(i).
    \11\ See 17 CFR 240.15c3-5(c)(1)(ii).
    \12\ See 17 CFR 240.15c3-5(c)(2)(i).
    \13\ See 17 CFR 240.15c3-5(c)(2)(ii).
    \14\ See 17 CFR 240.15c3-5(c)(2)(iii).
    \15\ See 17 CFR 240.15c3-5(c)(2)(iv).
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    The Commission has received a request from NYSE Amex LLC (``NYSE 
Amex''), NYSE Arca, Inc. (``NYSE Arca''), and New York Stock Exchange 
LLC (``NYSE'') (collectively, ``NYSE Euronext'') to extend the 
compliance date for the automated controls requirement pursuant to 
Rules 15c3-5(c)(1)(ii) and (c)(2) for Floor Brokers until November 30, 
2011.\16\ Specifically,

[[Page 51458]]

NYSE Euronext indicated that more time is needed to complete the 
implementation of the automated controls required pursuant to Rules 
15c3-5(c)(1)(ii) and (c)(2) for orders handled on a manual basis 
because the floor broker operations of broker-dealers with market 
access historically have used manual systematic controls for their risk 
management and regulatory purposes with respect to manual orders, and 
they will need additional time to complete the development and 
implementation of automated controls for such manual orders.\17\ NYSE 
Euronext explained that certain Floor Brokers initially believed that 
their existing combination of automated and manual controls would be 
sufficient for compliance with Rule 15c3-5,\18\ and only recently 
became aware that the required pre-trade controls under the Rule must 
be systemic and automated for compliance purposes.\19\ NYSE Euronext 
also explained that additional time would provide the NYSE Euronext 
with an opportunity to update Floor Broker-related systems and thereby 
facilitate compliance with the Rule by Floor Brokers.\20\
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    \16\ See letter from Janet McGinness, Senior Vice President--
Legal and Corporate Secretary, NYSE Euronext, on behalf of NYSE 
Amex, NYSE Arca, and NYSE, to Elizabeth Murphy, Secretary, 
Commission, dated June 29, 2011 (``NYSE Euronext Letter'').
    \17\ Id.
    \18\ Id. at 2.
    \19\ See Rule 15c3-5 Adopting Release.
    \20\ NYSE Euronext Letter at 2.
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III. Discussion

    The Commission is temporarily exempting Floor Brokers from the 
automated controls requirement of Rules 15c3-5(c)(1)(ii) \21\ and 
(c)(2) \22\ until November 30, 2011. The Commission believes that 
providing additional time for such Floor Brokers to complete the 
development and implementation of automated controls pursuant to Rules 
15c3-5(c)(1)(ii) and (c)(2) for orders handled on a manual basis, where 
manual systematic controls historically were used for risk management 
and regulatory purposes, is reasonable. In addition, the Commission 
believes that temporarily exempting Floor Brokers from the automated 
controls requirement of Rules 15c3-5(c)(1)(ii) and (c)(2) until 
November 30, 2011, should facilitate the orderly and meaningful 
implementation of the required automated risk management controls for 
those Floor Brokers that need more time to be in compliance with the 
Rule.
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    \21\ See 17 CFR 240.15c3-5(c)(1)(ii).
    \22\ See 17 CFR 240.15c3-5(c)(2).
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    For the foregoing reasons, the Commission finds that granting the 
foregoing temporary exemption is necessary and appropriate in the 
public interest, and is consistent with the protection of investors.

IV. Conclusion

    It Is Hereby Ordered, pursuant to Rule 15c3-5(f),\23\ that the 
floor broker operations of broker-dealers with market access that 
handle orders on a manual basis are temporarily exempted from the 
automated controls requirement of Rules 15c3-5(c)(1)(ii) \24\ and 
(c)(2) \25\ until November 30, 2011.
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    \23\ See 17 CFR 240.15c3-5(f).
    \24\ See 17 CFR 240.15c3-5(c)(1)(ii).
    \25\ See 17 CFR 240.15c3-5(c)(2).

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-21099 Filed 8-17-11; 8:45 am]
BILLING CODE 8011-01-P