[Federal Register Volume 75, Number 19 (Friday, January 29, 2010)]
[Notices]
[Pages 4889-4891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-1850]
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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 [email protected]. 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