Document ID: SEC-2010-0156-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Extend for 12 Months the Pilot Program Permitting the Exchange's Ownership Interest in BIDS Holdings L.P. (BIDS) and the Affiliation of BIDS With the New York Block Exchange LLC
Posted Date: 2010-01-29T05:00Z

[Federal Register: January 29, 2010 (Volume 75, Number 19)]
[Notices]               
[Page 4889-4891]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29ja10-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61409; File No. SR-NYSE-2010-04]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Extend for 12 Months the Pilot Program Permitting the Exchange's 
Ownership Interest in BIDS Holdings L.P. (BIDS) and the Affiliation of 
BIDS With the New York Block Exchange LLC

January 22, 2010.
    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 January 11, 2010, New York Stock Exchange LLC (``NYSE'' 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 Exchange. The Exchange 
filed this proposal pursuant to Rule 19b-4(f)(6) under the Act \3\ and 
requested that the Commission waive the 30-day pre-operative waiting 
period contained in Rule 19b-4(f)(6)(iii).\4\ 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\ 17 CFR 240.19b-4(f)(6).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend for an additional 12 months the 
January 22, 2010 expiration date of the pilot program that provides an 
exception to NYSE Rule 2B by permitting the Exchange's equity ownership 
interest in BIDS Holdings L.P. (``BIDS''), which is the parent company 
of a member of the Exchange, and BIDS's affiliation with

[[Page 4890]]

the New York Block Exchange LLC, an affiliate of the Exchange. There is 
no proposed rule text.

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
    On January 22, 2009, the Commission approved the governance 
structure proposed by the Exchange with respect to the New York Block 
Exchange (``NYBX''), a new electronic trading facility of the Exchange 
for NYSE-listed securities that was established by means of a joint 
venture between the Exchange and BIDS.\5\ The governance structure that 
was approved is reflected in the Limited Liability Company Agreement of 
New York Block Exchange LLC (the ``Company''), the entity that owns and 
operates NYBX. Under the governance structure approved by the 
Commission, the Exchange and BIDS each own a 50% economic interest in 
the Company. In addition, the Exchange, through its wholly-owned 
subsidiary NYSE Market, Inc., owns less than 10% of the aggregate 
limited partnership interest in BIDS. BIDS is the parent company of 
BIDS Trading, L.P. (``BIDS Trading''), which became a member of the 
Exchange in connection with the establishment of NYBX.
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    \5\ See Securities Exchange Act Release No. 59281 (January 22, 
2009), 74 FR 5014 (January 28, 2009) (order approving SR-NYSE-2008-
120) (``Approval Order'').
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    The foregoing ownership arrangements would violate NYSE Rule 2B 
without an exception from the Commission.\6\ First, the Exchange's 
indirect ownership interest in BIDS Trading violates the prohibition in 
Rule 2B against the Exchange maintaining an ownership interest in a 
member organization. Second, BIDS Trading is an affiliate of an 
affiliate of the Exchange,\7\ which violates the prohibition in Rule 2B 
against a member of the Exchange having such status. Consequently, in 
the Approval Order, the Commission permitted an exception to these two 
potential violations of NYSE Rule 2B, subject to a number of 
limitations and conditions. One of the conditions for Commission 
approval was that the proposed exception from NYSE Rule 2B to permit 
NYSE's indirect ownership/interest in BIDS Trading and BIDS Trading's 
affiliation with the Company (which is an affiliate of NYSE) would be 
for a pilot period of 12 months.\8\
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    \6\ NYSE Rule 2B provides, in relevant part, that: ``[w]ithout 
prior SEC approval, the Exchange or any entity with which it is 
affiliated shall not, directly or indirectly, acquire or maintain an 
ownership interest in a member organization. In addition, a member 
organization shall not be or become an affiliate of the Exchange, or 
an affiliate of any affiliate of the Exchange. * * * The term 
affiliate shall have the meaning specified in Rule 12b-2 under the 
Act.''
    \7\ Specifically, the Company is an affiliate of the Exchange, 
and BIDS Trading is an affiliate of the Company based on their 
common control by BIDS. The affiliation in each case is the result 
of the 50% ownership interest in the Company by each of the Exchange 
and BIDS.
    \8\ See Approval Order, 74 FR at 5018.
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    In discussing the pilot basis of the exception to NYSE Rule 2B, the 
Approval Order noted that the pilot period ``will provide NYSE and the 
Commission an opportunity to assess whether there might be any adverse 
consequences of the exception and whether a permanent exception is 
warranted.'' \9\ The 12-month pilot period is due to expire on January 
22, 2010. While the Exchange believes that the experience to date 
operating under the exception to Rule 2B fully justifies making the 
exception permanent, the Exchange now seeks to extend the ending date 
for the pilot program for another 12 months to January 22, 2011 to 
allow additional time, if necessary, for the Commission to obtain and 
review the information it needs in order to make its determination 
regarding any adverse consequences of the exception and whether a 
permanent exception is warranted. During the proposed extension of the 
pilot program period, the Exchange's current indirect ownership 
interest in BIDS Trading \10\ and BIDS Trading's affiliation with the 
Company would continue to be permitted.
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    \9\ Id. at 5019.
    \10\ Another condition for the exception to NYSE Rule 2B 
specified in the Approval Order was that the Exchange's equity 
interest in BIDS must remain less than 9%, absent prior Commission 
approval of any increase. See id. at 5018. Subsequently, the 
Commission approved a proposal by the Exchange to slightly increase 
the ceiling on its equity ownership in BIDS to less than 10%, and 
that will be the applicable limitation during the extension of the 
pilot period. See Securities Exchange Act Release No. 61257 
(December 30, 2009), 75 FR 500 (January 5, 2010) (order approving 
SR-NYSE-2009-116).
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    If the Commission should determine prior to the end of the extended 
pilot period that a permanent exception to NYSE Rule 2B is warranted, 
the Exchange would have the option of submitting a proposed rule change 
to accomplish this and simultaneously terminate the pilot program.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \11\ of 
the Act,\12\ in general, and furthers the objectives of Section 6(b)(1) 
\13\ of the Act, which requires a national securities exchange to be so 
organized and have the capacity to carry out the purposes of the Act 
and to comply, and to enforce compliance by its members and persons 
associated with its members, with the provisions of the Act. The 
proposed rule change is also consistent with, and furthers the 
objectives of Section 6(b)(5) \14\ of the Act, 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 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 general, to 
protect investors and the public interest.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78.
    \13\ 15 U.S.C. 78f(b)(1).
    \14\ 15 U.S.C. 78f(b)(5).
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    In the Approval Order, the Commission determined that the proposed 
exception from NYSE Rule 2B to permit NYSE's indirect ownership 
interest in BIDS Trading and BIDS Trading's affiliation with the 
Company was consistent with the Act, including Section 6(b)(5) 
thereof.\15\ As the basis for its determination, the Commission cited 
the specific limitations and conditions listed in the Approval Order to 
which its approval of the exception to NYSE Rule 2B was subject,\16\ 
stating: ``These conditions appear reasonably designed to mitigate 
concerns about potential conflicts of interest and unfair competitive 
advantage. * * * These conditions appear reasonably designed to promote 
robust and independent regulation of BIDS. * * * The Commission 
believes that, taken together, these conditions are reasonably designed 
to mitigate potential conflicts between the Exchange's commercial 
interest in BIDS

[[Page 4891]]

and its regulatory responsibilities with respect to BIDS.'' \17\ 
Because these same limitations and conditions will continue to be 
applicable during the extension of the pilot period, other than the 
ending date of the pilot period and the recently approved small 
increase in the ceiling on the Exchange's equity interest in BIDS, the 
Exchange believes that the exception from NYSE Rule 2B described above 
will continue to be consistent with the Act during that extension.
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    \15\ See Approval Order, 74 FR at 5018-5019.
    \16\ Id. at 5018.
    \17\ Id. at 5019.
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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

    The foregoing proposal has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder because it does 
not (i) Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 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.\18\
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    \18\ In addition, Rule 19b-4(f)(6) requires the Exchange to give 
the Commission 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. The Exchange satisfied this requirement.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest, 
because the proposal would preserve the benefits of the Exchange's 
pilot program without interruption as the Exchange and the Commission 
monitor and assess whether any adverse consequences have resulted from 
the exceptions to NYSE Rule 2B and if the exceptions continue to be 
appropriate. Therefore, the Commission hereby grants the Exchange's 
request and designates the proposal as operative upon filing.\19\
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    \19\ For purposes only of waiving the 30-day operative delay of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
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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-NYSE-2010-04 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 Number SR-NYSE-2010-04. 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 will also 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-2010-04 and should be 
submitted on or before February 19, 2010.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-1850 Filed 1-28-10; 8:45 am]
BILLING CODE 8011-01-P