Document ID: SEC-2015-0155-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2015-01-26T05:00Z

[Federal Register Volume 80, Number 16 (Monday, January 26, 2015)]
[Notices]
[Pages 4006-4008]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-01247]

[[Page 4006]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74094; File No. SR-NYSEMKT-2015-05]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rule 123C--
Equities To Specify That Exchange Systems May Close One or More 
Securities Electronically If a Designated Market Maker Registered in a 
Security or Securities Cannot Facilitate the Close of Trading as 
Required by Exchange Rules

January 20, 2015.
    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 January 13, 2015, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') filed with 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 Rule 123C--Equities to specify that 
Exchange systems may close one or more securities electronically if a 
Designated Market Maker registered in a security or securities cannot 
facilitate the close of trading as required by Exchange rules. 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 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 Rule 123C--Equities (``Rule 123C'') 
to specify that Exchange systems may close one or more securities 
electronically if a Designated Market Maker (``DMM'') registered in a 
security or securities cannot facilitate the close of trading as 
required by Exchange rules.
    Rule 123C specifies the procedures to be followed at the close of 
trading on the Exchange, including procedures for the execution of 
closing interest,\4\ which interest is guaranteed to participate in the 
closing transaction,\5\ and the determination of the closing print(s) 
to be reported to the Consolidated Tape for each security. 
Supplementary Material .10 to Rule 123C (``Rule 123C.10'') currently 
provides that closings may be effectuated manually or electronically. 
However, the current rule contemplates that closings would be 
facilitated by the DMM, as provided for in Rule 104(a)(3)--Equities.
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    \4\ See Rule 123C(7) (Order of Execution at the Close). Rule 
123C(7)(a) specifies the type of interest that must be executed in 
whole or in part in the closing transaction, and the allocation 
order of such interest.
    \5\ See Rule 123C(8).
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    The Exchange proposes to amend Rule 123C.10 to provide that, if a 
DMM cannot facilitate the close of trading for one or more securities 
for which the DMM is registered, the Exchange would close those 
securities electronically.\6\ Unlike DMMs, who have the obligation to 
trade for their own account to supply liquidity as needed to facilitate 
the close,\7\ the Exchange would not supply any liquidity when 
effectuating an electronic close. Without the addition of liquidity to 
offset an imbalance, the closing price may not be reasonably related to 
the last sale. To avoid closing at a price too far away from the last 
sale, the Exchange proposes to establish numerical guidelines to 
provide parameters regarding the price a security may close when the 
Exchange closes such security.
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    \6\ The proposed amendment contemplates that a DMM's inability 
to close securities either manually or electronically would be 
related to business continuity disruptions such as the physical 
closing of the Exchange Trading Floor or equipment and connectivity 
breakdowns that prevent the DMM from closing a security either 
manually or electronically. When a DMM is unable to close securities 
manually or electronically, the DMM's affirmative obligations under 
Rule 104 would not apply.
    \7\ See Rule 104(a)(3)--Equities and 104(f)(iii)--Equities.
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    As proposed, the closing price of a security closed by the Exchange 
would not be greater than or less than the last sale price on the 
Exchange (the ``Reference Price'') by an amount within the Closing 
Numerical Guidelines set forth below:

------------------------------------------------------------------------
                                                              Closing
                                                             Numerical
                                                             Guideline
                                                          (Closing Price
                     Reference Price                       % Difference
                                                             from the
                                                             Reference
                                                              Price)
------------------------------------------------------------------------
Greater than $0.00 up to and including $25.00...........              10
Greater than $25.00 up to and including $50.00..........               5
Greater than $50.00.....................................               3
------------------------------------------------------------------------

    The proposed numerical guidelines are the same as those currently 
utilized in determining whether an execution qualifies as clearly 
erroneous under Rule 128--Equities.\8\ The Exchange believes that using 
the same guidelines when the Exchange closes a security electronically 
is appropriate because it would reduce the potential for the closing 
price on the Exchange to be considered erroneous.
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    \8\ Rule 128--Equities defines a clearly erroneous execution as 
an execution with an obvious error in any term, such as price, 
number of shares or other unit of trading, or identification of the 
security. Under the numerical guidelines set forth in Rule 128--
Equities, an execution may be found to be clearly erroneous only if 
the price of the transaction to buy is greater, or less in the case 
of a sale, than the reference price by an amount that equals or 
exceeds the numerical guidelines for a particular transaction 
category. In determining whether an execution is clearly erroneous, 
the Exchange generally utilizes the consolidated last sale as the 
Reference Price.
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    Further, the Exchange proposes to amend Rule 123C.10 to specify the 
eligible interest to be considered in an Exchange electronic close. 
Specifically, as proposed, no manually-entered Floor interest would 
participate in an Exchange electronic close, and if previously entered, 
would be ignored.\9\ Further, in performing a close under the proposed 
rule, the Exchange would consider all interest eligible to trade in the 
close consistent with Rule 123C(7) \10\

[[Page 4007]]

and 123C(8)(a).\11\ Under no circumstances, however, would the Exchange 
close a security if the closing price would be greater than or less 
than the Reference Price by an amount outside the Closing Numerical 
Guidelines. Accordingly, interest specified in Rule 123C(7)(a) would 
not participate in a closing trade if such interest would cause a 
closing price to be outside the Closing Numerical Guidelines.
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    \9\ Manually-entered Floor interest includes interest entered by 
the DMM on behalf of a Floor broker and the DMM interest entered 
manually. The Exchange notes that, under regular trading conditions, 
if manually-entered Floor interest has been entered into Exchange 
systems, Exchange systems will not permit a DMM to close a stock 
electronically and the DMM would instead be required to close the 
security manually. The Exchange proposes to make this explicit in 
the text of Supplementary Material .10.
    \10\ Rule 123C(7)(a) sets forth the interest that must be 
executed or cancelled as part of the closing transaction as well as 
the order of execution. Rule 123C(7)(b) sets forth the interest that 
may be used to offset a closing imbalance and the order of execution 
(i.e., interest that is not guaranteed to participate in the closing 
transaction).
    \11\ Rule 123C(8) governs printing of the closing transaction 
where there is an order imbalance (Rule 123C(8)(a)) and where there 
is no order imbalance (Rule 123C(8)(b)).
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    The proposed rule would also specify that the provisions of Rule 
123C(9)(a)(1) and 123C(9)(b) would be suspended if the Exchange closes 
a security electronically. Rule 123C(9)(a)(1) permits the Exchange, on 
a security-by-security basis, to temporarily suspend the hours of 
operation under Rule 52--Equities so that offsetting interest may be 
solicited from both on-Floor and off-Floor participants and entered 
after 4:00 p.m. ET to reduce the size of the imbalance. Rule 123C(9)(b) 
specifies that only the DMM may request the temporary suspensions 
available under Rule 123C(9)(a). As proposed, if the Exchange closes a 
security electronically, the assigned DMM would not have the authority 
to invoke Rule 123C(9)(a)(1).
    Similarly, the proposed rule would specify that only the Exchange 
would be able to invoke Rule 123C(9)(a)(2) if the Exchange closes a 
security electronically. Rule 123C(9)(a)(2) permits temporary 
suspensions of the prohibition on the cancellation or reduction of a 
Market on Close (``MOC'')/Limit on Close (``LOC'') order after 3:58 
p.m. where there is a legitimate error in such an order and execution 
of the order would cause significant price dislocation at the close. 
Only the assigned DMM can request relief under Rule 123C(9)(a)(2). 
Under the proposed rule, in an electronic close by the Exchange, Rule 
123C(9)(a)(2) would be in effect but the assigned DMM would not have 
authority to temporarily suspend cancellation; only the Exchange would 
be able to invoke a temporary suspension under the rule.
    Because of the technology changes associated with the proposed rule 
change, the Exchange proposes to announce the implementation date via 
Trader Update.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\12\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\13\ in particular, because 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 protect investors and the public interest. The 
Exchange believes that permitting the Exchange to automatically close 
trading would remove impediments to and perfect the mechanism of a free 
and open market and a national market system by ensuring an orderly 
close if the registered DMM cannot manually or electronically 
facilitate the close of trading as required by Exchange rules. 
Similarly, the proposal promotes just and equitable principles of trade 
and removes impediments to and perfects the mechanism of a free and 
open market by providing customers and the investing public with the 
certainty of a close in circumstances where business continuity 
disruptions or other emergencies would prevent the assigned DMMs from 
closing a security. For the same reasons, the proposal is also designed 
to protect investors as well as the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed amendment to Rule 123C.10 
to provide that closings effectuated by the Exchange would be within a 
proposed numerical guideline would remove impediments to and perfect 
the mechanism of a free and open market because having such guidelines 
provides transparency regarding the range of potential prices that a 
security may close in such scenario. The Exchange further believes that 
the proposed numerical guidelines, which are based on existing 
guidelines for clearly erroneous executions, would remove impediments 
to and perfect the mechanism of a fair and orderly market because in 
the absence of a DMM supplying liquidity, the proposed guidelines would 
reduce the possibility for closing prices to be executed at potentially 
erroneous prices, thereby protecting investors and the public. 
Similarly, the Exchange believes that excluding interest eligible for 
the close that would cause an execution to occur outside the proposed 
numerical guidelines, even if such interest would otherwise be required 
to be included in a close effectuated by a DMM, and permitting the 
Exchange to cancel or reduce an MOC/LOC order after 3:58 p.m. where 
there is a legitimate error and execution of the order would cause 
significant price dislocation at the close, would remove impediments to 
and perfect the mechanism of a fair and orderly market because it would 
assure that the Exchange could effectuate the close within the proposed 
specified price ranges. The proposed rule therefore promotes just and 
equitable principles of trade because it provides transparency to 
entering firms of whether interest would be eligible to participate in 
a closing transaction effectuated by the Exchange.

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 rule change is 
not intended to address competitive issues but rather enable the 
Exchange to close trading where circumstances would prevent a DMM from 
facilitating a close.

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 \14\ and Rule 19b-4(f)(6) thereunder.\15\ 
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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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \16\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant

[[Page 4008]]

to Rule 19b-4(f)(6)(iii),\17\ 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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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 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) \18\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \18\ 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-NYSEMKT-2015-05 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-NYSEMKT-2015-05. 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 Number SR-NYSEMKT-2015-05 and should 
be submitted on or before February 17, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-01247 Filed 1-23-15; 8:45 am]
BILLING CODE 8011-01-P