Document ID: SEC-2008-1411-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-10-10T04:00Z

[Federal Register: October 10, 2008 (Volume 73, Number 198)]
[Notices]               
[Page 60386-60388]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10oc08-150]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58717; File No. SR-NYSEArca-2008-106]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change Amending Rule 
6.87--Obvious Errors and Catastrophic Errors

 October 2, 2008.
    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 October 2, 2008, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the self-regulatory organization. NYSE Arca filed 
the proposed rule change as a ``non-controversial'' proposal pursuant 
to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder,\4\ 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\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 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 6.87--Obvious Errors and 
Catastrophic Errors. The text of the proposed rule change is available 
at the principal office of the Exchange, the Commission's Public 
Reference Room, and at www.nyse.com.

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 this filing is to amend Exchange rules governing 
obvious and catastrophic errors, by adding provisions which will allow 
for the nullification of trades that are a result of either an 
erroneous quote, or print, in the underlying security. Specifically, 
NYSE Arca is proposing new Rule 6.87(a)(4) Erroneous Print in the 
Underlying, and new Rule 6.87(a)(5) Erroneous Quote in the Underlying.
    Market participants on NYSE Arca base the value of their quotes and 
orders off of the price of underlying security. These two proposed 
provisions cover

[[Page 60387]]

instances where the information the market participants are using to 
price options is erroneous, through no fault of their own. An erroneous 
quote or print in an underlying security, which is disseminated by the 
primary market \5\ for that security, means that market participants 
are receiving erroneous information which they then incorporate into 
trading decisions. In these instances, market participants have little 
if any chance of pricing options accurately. In order to provide relief 
from transactions that occur as a result of these erroneous prints and/
or quotes, the Exchange proposes the following provisions.
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    \5\ NYSE Arca Rule 6.1(b)(27) defines Primary Market as the 
principal market in which the underlying stock or Exchange-Traded 
Fund Share is traded.
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Rule 6.87(a)(4) Erroneous Print in Underlying
    An electronic trade resulting from an erroneous print disseminated 
by the underlying market which is later cancelled or corrected by that 
underlying market may be nullified. In order to be nullified, however, 
the trade must be the result of an erroneous print that is higher or 
lower than the average trade in the underlying security during a two-
minute period before and after the erroneous print by an amount at 
least five times greater than the average quote width for such 
underlying security during the same period.
    For purposes of this Rule, the average trade in the underlying 
security shall be determined by adding the prices of each trade during 
the four minute time period referenced above (excluding the trade in 
question) and dividing by the number of trades during such time period 
(excluding the trade in question). For purposes of this Rule, the 
average quote width shall be determined by adding the quote widths of 
each separate quote during the four minute time period referenced above 
(excluding the quote in question) and dividing by the number of quotes 
during such time period (excluding the quote in question).
Rule 6.87(a)(5) Erroneous Quote in Underlying
    Electronic trades resulting from an erroneous quote in the 
underlying security may be adjusted or nullified as set forth in 
section (a)(3) of Rule 6.87. An erroneous quote occurs when the 
underlying security has a width of at least $1.00 and has a width at 
least five times greater than the average quote width for such 
underlying security on the primary market (as defined in Rule 
6.1(b)(27)) during the time period encompassing two minutes before and 
after the dissemination of such quote. For purposes of this Rule, the 
average quote width shall be determined by adding the quote widths of 
each separate quote during the four minute time period referenced above 
(excluding the quote in question) and dividing by the number of quotes 
during such time period (excluding the quote in question) and dividing 
by the number of quotes during such time period (excluding the quote in 
question).
    These proposed rule changes will provide market participants on 
NYSE Arca the same opportunities for price adjustment or trade 
nullification that are available on other options exchanges. The 
Exchange notes that these provisions are similar in all respects to 
rules already approved for use at The Chicago Board Options Exchange 
(``CBOE'') \6\ and The American Stock Exchange (``Amex'').\7\
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    \6\ See CBOE Rules 6.25(a)(4)-(5).
    \7\ See Amex Rules 936-ANTE(a)(4)-(5).
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2. Statutory Basis
    The Exchange believes that its proposal 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, in that it is designed to prevent 
fraudulent and manipulative acts and practices, promote just and 
equitable principles of trade, 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. NYSE Arca 
believes that this proposal is appropriate given that it provides for 
the adjustment or nullification of trades, which are executed at 
clearly erroneous prices due to no fault of the participants on the 
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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, 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 \10\ and Rule 19b-4(f)(6) 
thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. 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. However, Rule 19b-4(f)(6)(iii) permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
requests that the Commission waive the 30-day operative delay as well 
as the five business-day pre-filing requirement to allow the Exchange 
to immediately offer market participants on NYSE Arca the same 
potential for relief that is available at other option exchanges, when 
an erroneous print, or quote, in an underlying security occurs on the 
primary market. The Exchange argued that such flexibility is 
increasingly important in light of recent market volatility. The 
Commission believes that waiving the 30-day operative delay \12\ is 
consistent with the protection of investors and the public 
interest.\13\ Given that the Exchange's proposed rule change is 
substantially similar to the rules of other exchanges previously 
approved by the Commission,\14\ the proposal does not appear to present 
any novel regulatory issues. Therefore, the Commission

[[Page 60388]]

designates the proposal operative upon filing.
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    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \13\ The Commission is also waiving the five business-day pre-
filing requirement.
    \14\ See Amex Rule 936-ANTE(a)(4)-(5) and CBOE Rule 6.25(a)(4)-
(5).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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-NYSEArca-2008-106 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-NYSEArca-2008-106. 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 inspection 
and copying 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-NYSEArca-2008-106 and should 
be submitted on or before October 31, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-24179 Filed 10-9-08; 8:45 am]

BILLING CODE 8011-01-P