Document ID: SEC-2015-1572-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2015-09-28T04:00Z

[Federal Register Volume 80, Number 187 (Monday, September 28, 2015)]
[Notices]
[Pages 58318-58321]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-24517]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75966; File No. SR-NYSE-2015-39]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Supplementary Material .20 to Rule 103 To Permit Member 
Organizations That Operate as Designated Market Maker Units on the 
Exchange and Also Operate DMM Units on the NYSE MKT LLC To Make an 
Adjustment to Excess Net Capital

September 22, 2015.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 8, 2015, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been substantially 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ See 15 U.S.C. 78s(b)(1).
    \2\ See 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 Supplementary Material .20 to Rule 
103 (``NYSE Rule 103.20''), to permit member organizations that operate 
as Designated Market Maker (``DMM'') units on the Exchange and also 
operate DMM units on the NYSE MKT LLC (``NYSE MKT'') to make an 
adjustment to Excess Net Capital. 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, and at the Commission's Public 
Reference Room.

[[Page 58319]]

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 Exchange 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 these 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 aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend NYSE Rule 103.20, which sets forth 
the net liquid assets requirements for a member organization that 
operates as DMM a [sic] unit on the Exchange,\3\ to permit such DMM 
unit to make an adjustment to Excess Net Capital when calculating Net 
Liquid Assets if it also operates as a DMM unit on NYSE MKT. The 
proposed adjustment would permit a DMM unit to add back to its Excess 
Net Capital the lesser of (1) the actual haircuts under Securities and 
Exchange Commission (``SEC'' or ``Commission'') [sic] Rule 15c3-1 (the 
``SEC Net Capital Rule'') \4\ on its NYSE MKT DMM dealer positions, or 
(2) the NYSE MKT DMM tentative net capital requirement calculated 
according to NYSE MKT Rule 103.20--Equities (``NYSE MKT Rule 103.20'').
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    \3\ Pursuant to Rule 2(j), a DMM unit is defined as a member 
organization or unit within a member organization that has been 
approved to act as a DMM unit under Rule 98. Pursuant to Rule 2(i), 
a DMM is defined as an individual member, officer, partner, employee 
or associated person of a DMM unit who is approved by the Exchange 
to act in the capacity of a DMM. All references to rules herein are 
to NYSE rules, unless otherwise noted.
    \4\ 17 CFR 240.15c3-1.
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Background and Proposed Rule Change
    NYSE Rule 103.20 sets forth a Net Liquid Assets requirement for DMM 
units that exceed [sic] the SEC Net Capital Rule minimum net capital 
requirement applicable to market-making activities. The purpose of the 
Exchange's requirement is to reasonably assure that each DMM unit 
maintains sufficient liquidity to carry out its obligation to maintain 
a fair and orderly market in its assigned securities in times of market 
stress.
    Rule 103.20(a) defines ``Net Liquid Assets'' as the sum of (A) 
``Excess Net Capital'' and (B) ``Liquidity'' dedicated to the DMM unit. 
Excess Net Capital has the same meaning as the term excess net capital 
as computed in accordance with the SEC Net Capital Rule, which means 
the amount identified as item number 3770 of SEC Form X-17A-5 (``FOCUS 
Report''), except for DMM units that compute net capital under the 
alternative standard, for which it would mean item number 3910 of the 
FOCUS Report. Liquidity is defined as undrawn or actual borrowings that 
are dedicated to the DMM unit's business, as specified in Rule 
103.20(a)(3)(A)-(C). Rule 103.20 requires that aggregate Net Liquid 
Assets of all DMM units equal at least $125 million and that each DMM 
unit maintain or have allocated to it Net Liquid Assets that are the 
greater of (1) $1 million, or (2) $125,000 for each one-tenth of one 
percent (0.1%) of Exchange transaction dollar volume \5\ in its 
registered securities.
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    \5\ The term ``Exchange transaction dollar volume'' means the 
most recent Statistical Data, calculated and provided by the NYSE on 
a monthly basis.
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    Pursuant to NYSE MKT Rule 103.20, DMM units on NYSE MKT are 
required to calculate their NYSE MKT tentative net capital (``TNC'') 
requirement based on the greater of (i) $1,000,000 or (ii) the haircut 
charges on a theoretical position of 60 trading units of each assigned 
NYSE MKT DMM security and 20 trading units of each assigned Unlisted 
Trading Privileges DMM security. For NYSE MKT DMM units that also 
operate as DMMs on the NYSE, the haircuts on NYSE MKT DMM positions as 
computed pursuant to the SEC Net Capital Rule are deducted in computing 
Net Liquid Assets under NYSE Rule 103.20. DMM units operating on NYSE 
and NYSE MKT therefore incorporate the market risk charges (i.e., 
haircuts) on the NYSE MKT positions twice: First, because the NYSE and 
NYSE MKT DMM capital requirements are cumulative,\6\ Excess Net Capital 
available to meet the requirement of NYSE Rule 103.20 must be reduced 
by the amount of capital needed to satisfy the NYSE MKT Rule 103.20 
requirement and, second, in computing Net Liquid Assets under NYSE Rule 
103.20, the determination of Excess Net Capital incorporates several 
adjustments, such as a reduction for haircuts on proprietary positions, 
including NYSE MKT DMM positions.
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    \6\ NYSE Rule 103.20(b)(2) requires that Excess Net Capital be 
``dedicated exclusively to the DMM unit's activities and shall not 
be used by other business units.'' Accordingly, the portion of 
Excess Net Capital used to meet the DMM's NYSE Rule 103.20 
requirement cannot include the capital which is being used to meet 
the firm's NYSE MKT DMM requirement.
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    The Exchange accordingly proposes to add a new section (6) to NYSE 
Rule 103.20(b), which sets forth the minimum Net Liquid Assets 
requirement,\7\ to permit a DMM unit operating on both the NYSE and 
NYSE MKT to avoid duplicative reductions to Excess Net Capital by 
adding back the lesser of actual SEC Net Capital Rule haircuts on the 
firm's NYSE MKT DMM positions or the NYSE MKT DMM TNC requirement 
calculated pursuant to NYSE MKT Rule 103.20. The proposed adjustment 
would permit a DMM unit operating on both marketplaces to have Excess 
Net Capital reduced once for NYSE MKT DMM haircuts under NYSE Rule 
103.20, thereby adjusting the DMM unit's capital available to meet its 
Net Liquid Assets requirement. The Exchange believes that this change 
would result in a more efficient utilization of capital by DMM units 
who operate on both exchanges.
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    \7\ The Exchange also proposes to add a reference to the 
proposed adjustment in NYSE Rule 103.20(a)(1)(A), which defines the 
term ``Net Liquid Assets.''
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    The Exchange believes that the proposed change would not diminish 
the current levels of capital maintained by DMM units operating on both 
markets. The Exchange notes that it would continue to assess DMM unit 
financial requirements and that the Financial Industry Regulatory 
Authority, Inc. (``FINRA''), [sic] on behalf of the Exchange, would 
continue to monitor DMM unit compliance with NYSE Rule 103.20.
    The Exchange proposes to notify DMM units of the implementation 
date of this rule change via a Member Education Bulletin.
    The proposed change is not otherwise intended to address any other 
issues and the Exchange is not aware of any problems that DMM units 
would have in complying with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\8\ in general, and furthers the 
objectives of section 6(b)(5) of the Act,\9\ in particular, because 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 mechanisms of, a free and open market and a national market 
system and, in

[[Page 58320]]

general, to protect investors and the public interest and because it is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed change would remove 
impediments to, and perfect the mechanisms of, a free and open market 
and a national market system by reducing the financial burden on DMM 
units operating on both the Exchange and NYSE MKT by eliminating the 
requirement to apply duplicative NYSE MKT DMM dealer haircuts. The 
Exchange believes that permitting DMM units operating on both 
marketplaces to take an adjustment would prevent those units from 
taking NYSE MKT DMM positions into consideration twice as part of the 
Excess Net Capital calculation under NYSE Rule 103.20, thereby 
potentially lowering the DMM units' Excess Net Capital available to 
meet their Net Liquid Assets requirements. The Exchange believes that 
the proposed rule would continue to assure that DMM units have 
sufficient liquidity to carry out their obligations to maintain an 
orderly market in their assigned securities in times of market stress.
    The Exchange further believes that the proposed change would 
protect investors and the public interest by reducing existing barriers 
to entry for new DMM units and mitigating the potential loss of 
existing DMM units. Stabilizing and increasing the pool of DMM units 
with a more efficient financial structure would be beneficial to the 
Exchange and would also enhance market quality and thereby support 
investor protection and public interest goals.
    Finally, the Exchange believes that it is subject to significant 
competitive forces, as described below in the Exchange's statement 
regarding the burden on competition.
    For the foregoing reasons, the Exchange believes that the proposal 
is consistent with the Act.

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. The proposed change is 
designed to permit DMM units operating on the Exchange and NYSE MKT to 
make an adjustment to Excess Net Capital to add back haircuts on NYSE 
MKT DMM positions and avoid taking these haircuts into consideration 
twice, but would not affect the overall level thereof. This proposed 
change would eliminate a potential barrier to entry for new DMM units 
interested in operating on both markets, thereby promoting competition.
    The Exchange notes that market makers and traders on other U.S. 
equity exchanges are not subject to net capital requirements beyond 
those required by the SEC Net Capital Rule. Nonetheless, DMM units have 
unique affirmative obligations and the Exchange continues to believe 
that it is appropriate that their financial requirements be higher than 
other market participants. The proposal would support competition by 
making DMM unit financial requirements more manageable for member 
organizations, including both existing and potential future DMM units, 
and would thereby promote greater interest in seeking DMM unit 
appointments on the Exchange. Finally, the Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues. In such an environment, the 
Exchange must continually review, and consider adjusting the services 
it offers and the requirements it imposes to remain competitive with 
other U.S. equity exchanges.
    For the reasons described above, the Exchange believes that the 
proposed rule change reflects this competitive environment.

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 and Rule 19b-
4(f)(6)(iii) thereunder.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\13\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
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    At any time within 60 days of the filing of such 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
section 19(b)(2)(B)\14\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \14\ 15 U.S.C. 78s(b)(2)(B).
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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 Number SR-NYSE-2015-39 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

    All submissions should refer to File Number SR-NYSE-2015-39. 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

[[Page 58321]]

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 
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-NYSE-2015-39 and 
should be submitted on or before October 19, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ See 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-24517 Filed 9-25-15; 8:45 am]
BILLING CODE 8011-01-P