Document ID: SEC-2012-1581-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2012-09-26T04:00Z

[Federal Register Volume 77, Number 187 (Wednesday, September 26, 2012)]
[Notices]
[Pages 59234-59236]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-23634]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67895; File No. SR-NYSEMKT-2012-47]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change To Amend the NYSE Amex Options LLC Members 
Agreement To Empower the Volume Dispute Committee To Establish 
Principles for Determining Whether the Exchange Has Experienced a Bona 
Fide Systems Problem and To Adjust Certain Volume Measurements 
Accordingly

September 20, 2012.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 7, 2012, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') filed with

[[Page 59235]]

the Securities and Exchange Commission (the ``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE Amex Options LLC Members 
Agreement to empower the Volume Dispute Committee to establish 
principles for determining whether the Exchange has experienced a bona 
fide systems problem and to adjust certain volume measurements 
accordingly. The text of the proposed rule change is available on the 
Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, on the Commission's Web site at http://www.sec.gov, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the NYSE Amex Options LLC Members 
Agreement to empower the Volume Dispute Committee to establish 
principles for determining whether the Exchange has experienced a bona 
fide systems problem and to adjust certain volume measurements 
accordingly.
Background
    In 2011, NYSE MKT established NYSE Amex Options LLC (``Company''), 
a Delaware limited liability company formed by NYSE Euronext, NYSE MKT, 
and seven Founding Firms,\4\ and jointly owned by NYSE MKT and the 
Founding Firms, to operate an options facility of the Exchange.\5\ The 
governance structure of the Company is reflected in a Limited Liability 
Company Agreement and a Members Agreement.
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    \4\ The Founding Firms are Banc of America Strategic Investments 
Corporation, Barclays Electronic Commerce Holdings Inc., Citadel 
Securities LLC, Citigroup Financial Strategies, Inc., Goldman, Sachs 
& Co., Datek Online Management Corp., and UBS Americas Inc.
    \5\ Securities Exchange Act Release No. 64742 (June 24, 2011), 
76 FR 38436 (June 30, 2011) (SR-NYSEAmex-2011-18).
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    Under Article II, Section 2.1 of the Members Agreement, for a 
certain period, each Founding Firm must satisfy certain minimum volume 
requirements with respect to trading on the options facility. Under the 
Volume-Based Equity Plan, for each measurement period, the Company 
issues Annual Incentive Shares. Each Founding Firm is entitled to 
receive, for no additional consideration, a portion of the Annual 
Incentive Shares such that it dilutes, maintains or increases its 
equity interest in the Company (relative to the other Founding Firms) 
based on the degree to which the Founding Firm has failed to achieve, 
achieved or exceeded its ``Individual Target'' during the measurement 
period. A Founding Firm's Individual Target is its pro rata portion of 
an aggregate Founding Firm target contribution to the annual volume of 
the options facility.
    Under Article I, Section 1.1 of the Members Agreement, the 
Individual Target is defined as the product of (i) the Founding Firm 
aggregate target market share for such measurement period multiplied by 
(ii) such Founding Firm's Initial Class B Common Interests multiplied 
by (iii) the Industry Volume for such measurement period. Industry 
Volume is defined, with respect to any period, as the product of (x) 
the aggregate U.S. listed securities option exchange volume of cleared 
transactions in the Products (a contract that is listed for trading on 
the Exchange) during such period, as reported by the OCC, that are 
executed and cleared during such period multiplied by (y) two. However, 
Industry Volume excludes (i) the volume of cleared transactions in the 
Products during trading days on which trading on the Exchange is halted 
for certain periods, and (ii) Strategic Transaction Volume, which is 
designed to exclude certain strategy-based transactions.\6\
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    \6\ See Article II, Section 2.1(h) of the Members Agreement.
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    Article II, Section 2.4 of the Members Agreement authorizes the 
Company to establish a Volume Dispute Committee, which has 15 members, 
one chosen by each of the seven Founding Firms and the remaining eight 
chosen by the Exchange. Article II, Section 2.4 empowers the Volume 
Dispute Committee to (i) establish principles for determining the types 
of transactions for which the Founding Firms are not eligible to 
receive credit; (ii) establish principles for determining how 
transaction credits should be allocated among or between the Founding 
Firms; (iii) review and approve the Strategic Transaction Volume; and 
(iv) otherwise determine certain other matters with respect to volume-
related disputes.
Proposed Rule Change
    The Exchange believes that if it is experiencing a bona fide 
systems problem, then there may be situations in which such volume 
should not be included in calculating Individual Targets or Industry 
Volume. A bona fide systems problem could include, but is not limited 
to, an erroneous input that causes the generation of quotes that are 
substantially away from the quoted national best bid and offer or a 
problem that causes severe latencies that do not rise to the level of a 
trading halt but that interfere with a Founding Firm's ability to quote 
or route orders. Because system problems can take many forms and may 
not be predictable, the Exchange does not propose to attempt to define 
what a systems problem is for this purpose. Rather, the Exchange 
believes that the Volume Dispute Committee should be empowered to 
establish principles for determining whether a bona fide systems 
problem occurred on the options facility and for what time period. The 
Exchange believes that providing the Volume Dispute Committee with such 
authority will provide the necessary flexibility and structure to 
resolve disputes about what volume should be counted in such 
situations.\7\
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    \7\ The Exchange notes that while it has procedures for 
adjusting or busting certain trades under Rule 957NY [sic], there 
may be certain instances in which bona fide systems issues have 
occurred but where certain trades fall outside of this Rule or 
otherwise are permitted to stand under the Rule, it would be 
inequitable to include such trades in calculating Industry Volume or 
a Founding Firm's Individual Target.
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    Thus, the Exchange proposes to amend Article II, Section 2.4(a) of 
the Members Agreement to empower the Volume Dispute Committee to 
establish principles for determining whether the Exchange has 
experienced a bona fide systems problem, and the time period of such 
bona fide systems problem. In Article 1, Section 1.1 of the Members 
Agreement, the Exchange also proposes to amend the definition of 
Industry Volume to provide that the computation of volume would exclude 
the volume of

[[Page 59236]]

cleared transactions in the Products during a period of time in which 
the Exchange experienced a bona fide systems problem. Finally, the 
Exchange proposes to amend Section 2.3(a), which establishes a 
methodology for determining whether a Founding Firm has met its 
Individual Target, to provide that credits would not be awarded for any 
transactions executed during a period of time in which the Exchange 
experienced a bona fide systems problem.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 (``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 foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and 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. The Exchange believes that 
the proposed rule change would promote just and equitable principles of 
trade by making the calculations of Individual Target and Industry 
Volume fairer by authorizing the Volume Dispute Committee to establish 
principles for excluding transactions that occurred while bona fide 
systems problems were occurring. The Exchange believes that such 
principles will help to foster cooperation among the Founding Firms and 
remove impediments to a free and open market, further encouraging the 
Founding Firms to bring order flow to the Exchange and thus promoting 
liquidity for all investors.
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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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-NYSEMKT-2012-47 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 No. SR-NYSEMKT-2012-47. This file 
number should be included on the subject line if email 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 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-NYSEMKT-2012-47 and should be 
submitted on or before October 17, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-23634 Filed 9-25-12; 8:45 am]
BILLING CODE 8011-01-P