[Federal Register Volume 74, Number 64 (Monday, April 6, 2009)]
[Notices]
[Pages 15545-15548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-7584]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59650; File No. SR-NYSEArca-2009-24]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NYSE Arca, Inc. To Adopt a Policy With Respect to the 
Treatment of Aberrant Trades

March 30, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Exchange Act'') \2\ and Rule 19b-4

[[Page 15546]]

thereunder,\3\ notice is hereby given that, on March 18, 2009, NYSE 
Arca, Inc. (``NYSE Arca'' or the ``Exchange'') 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 its rules governing NYSE Arca, LLC 
(also referred to as the ``NYSE Arca Marketplace''), which is the 
equities trading facility of NYSE Arca Equities. The Exchange proposes 
to adopt, with retroactive effect to January 1, 2008, a policy relating 
to its treatment of trade reports that it determines to be inconsistent 
with the prevailing market.

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
    Trades in listed securities occasionally occur at prices that 
deviate significantly from prevailing market prices and those trades 
sometimes establish a high, low or last sale price for a security that 
does not reflect the true market for the security. NYSE Arca seeks to 
address such instances of ``aberrant'' trades by adopting a policy that 
is substantially similar to a policy of the New York Stock Exchange 
(the ``NYSE Policy'').\4\ On February 9, 2009, NYSE Arca also filed a 
proposed rule change, which it designated as eligible for immediate 
effectiveness pursuant to Rule 19b-4(f)(6) \5\ under the 
ExchangeAct,\6\ to adopt a policy relating to NYSE Arca's treatment of 
trade reports that it determines to be inconsistent with the prevailing 
market.\7\ The policy proposed in this instant rule change is identical 
to the policy set forth in SR-NYSEArca-2009-09, except that the instant 
proposal is retroactive to January 1, 2008. This retroactive 
application is identical to the retroactivity provision in the NYSE 
Policy.
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    \4\ See Securities Exchange Act Release No. 59064 (December 5, 
2008), 73 FR 76082 (December 15, 2008) (SR-NYSE-2008-91).
    \5\ 17 CFR 240.19b-4(f)(6)
    \6\ 15 U.S.C. 78a et seq.
    \7\ See Securities Exchange Act Release No. 59453 (February 25, 
2009), 74 FR 9463 (March 4, 2009) (SR-NYSEArca-2009-09).
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    The Consolidated Tape Association (``CTA'') offers each Participant 
in the CTA Plan the discretion to append an indicator (an ``Aberrant 
Report Indicator'') to a trade report to indicate that the market 
believes that the trade price in a trade executed on that market does 
not accurately reflect the prevailing market for the security. The CTA 
recommends that data recipients should exclude the price of any trade 
to which the Aberrant Report Indicator has been appended from any 
calculation of the high, low and last sale prices for the security.
    During the course of surveillance by the Exchange or as a result of 
notification by another market, listed company or market participant, 
the Exchange may become aware of trade prices that do not accurately 
reflect the prevailing market for a security. In such a case, the 
Exchange proposes to adopt as policies that it:
     May determine to append an Aberrant Report Indicator to 
any trade report with respect to any trade executed on the Exchange 
that the Exchange determines to be inconsistent with the prevailing 
market; and
     Shall discourage vendors and other data recipients from 
using prices to which the Exchange has appended the Aberrant Report 
Indicator in any calculation of the high, low or last sale price of a 
security.
    NYSE Arca believes that retroactive application of its aberrant 
trade policy is warranted because of the significant market volatility 
and trade reporting issues that all market centers experienced during 
2008. Therefore, NYSE Arca believes that it should be permitted to act 
retroactively to append the Aberrant Report Indicator to trades that do 
not accurately reflect the prevailing market for a security commencing 
as of January 1, 2008.
    The Exchange will urge vendors to disclose the exclusion from high, 
low or last sale price data of any aberrant trades excluded from high, 
low or last sale price information they disseminate and to provide to 
data users an explanation of the parameters used in the Exchange's 
aberrant trade policy. Upon initial adoption of the Aberrant Report 
Indicator, the Exchange will also contact all of its listed companies 
to explain the aberrant trade policy and will notify users of the 
information that these are still valid trades. The Exchange will inform 
the affected listed company each time the Exchange or another market 
appends the Aberrant Report Indicator to a trade in an NYSE Arca listed 
stock and will remind the users of the information that these are still 
valid trades in that they were executed and not unwound as in the case 
of a clearly erroneous trade.
    While the CTA disseminates its own calculations of high, low and 
last sale prices, vendors and other data recipients--and not the 
Exchange--frequently determine their own methodology by which they wish 
to calculate high, low and last sale prices. Therefore, the Exchange 
shall endeavor to explain to those vendors and other data recipients 
the deleterious effects that can result from including in the 
calculations a trade to which the Aberrant Report Indicator has been 
appended.
    In making the determination to append the Aberrant Report 
Indicator, the Exchange shall consider all factors related to a trade, 
including, but not limited to, the following:
     Material news released for the security;
     Suspicious trading activity;
     System malfunctions or disruptions;
     Locked or crossed markets;
     A recent trading halt or resumption of trading in the 
security;
     Whether the security is in its initial public offering;
     Volume and volatility for the security;
     Whether the trade price represents a 52-week high or low 
for the security;
     Whether the trade price deviates significantly from recent 
trading patterns in the security;
     Whether the trade price reflects a stock-split, 
reorganization or other corporate action;
     The validity of consolidated tape trades and quotes in 
comparison to national best bids and offers; and
     The general volatility of market conditions.
    In addition, the Exchange proposes that its policy shall be to 
consult with the listing exchange (if the Exchange is not the listing 
exchange) and with other

[[Page 15547]]

markets (in the case of executions that take place across multiple 
markets) and to seek a consensus as to whether the trade price is 
consistent with the prevailing market for the security.
    In determining whether trade prices are inconsistent with the 
prevailing market, the Exchange proposes that Exchange policy shall be 
to follow the following general guidelines: The Exchange will determine 
whether a trade price does not reflect the prevailing market for a 
security if the trade occurs during regular trading hours (i.e., 9:30 
a.m. to 4 p.m.) and occurs at a price that deviates from the 
``Reference Price'' by an amount that meets or exceeds the following 
thresholds:

------------------------------------------------------------------------
               Trade price                      Numerical threshold
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Between $0 and $15.00...................  Seven Percent.
Between $15.01 and $50.00...............  Five Percent.
In excess of $50.00.....................  Three Percent.
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    The ``Reference Price'' refers to (a) if the primary market for the 
security is open at the time of the trade, the national best bid or 
offer for the security, or (b) if the primary market for the security 
is not open at the time of the trade, the first executable quote or 
print for the security on the primary market after execution of the 
trade in question. However, if the circumstances suggest that a 
different Reference Price would be more appropriate, the Exchange will 
use the different Reference Price. For instance, if the national best 
bid and offer for the security are so wide apart as to fail to reflect 
the market for the security, the Exchange might use as the Reference 
Price a trade price or best bid or offer that was available prior to 
the trade in question.
    If the Exchange determines that a trade price does not reflect the 
prevailing market for a security and the trade represented the last 
sale of the security on the Exchange during a trading session, the 
Exchange may also determine to remove that trade's designation as the 
last sale. The Exchange may do so either on the day of the trade or at 
a later date, so as to provide reasonable time for the Exchange to 
conduct due diligence regarding the trade, including the consideration 
of input from markets and other market participants.
    NYSE Arca advises that it proposes to use the Aberrant Report 
Indicator in accordance with the guidelines set forth above and that it 
may apply the Aberrant Trade Report on a retroactive basis commencing 
January 1, 2008.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Exchange Act,\8\ in general, and furthers the 
objectives of Section 6(b)(5) of the Exchange Act,\9\ in particular in 
that it is designed 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 mechanism 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    In particular, the Aberrant Report Indicator is consistent with the 
protection of investors and the public interest in that the Exchange 
will seek to ensure a proper understanding of the Aberrant Report 
Indicator among securities market participants by: (i) Urging vendors 
to disclose the exclusion from high, low or last sale price data of any 
aberrant trades excluded from high, low or last sale price information 
they disseminate and to provide to data users an explanation of the 
parameters used in the Exchange's aberrant trade policy; (ii) informing 
the affected listed company each time the Exchange or another market 
appends the Aberrant Report Indicator to a trade in an NYSE Arca listed 
stock; and (iii) reminding the users of the information that these are 
still valid trades in that they were executed and not unwound as in the 
case of a clearly erroneous trade.

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 Exchange Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-NYSEArca-2009-24 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2009-24. 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 on official 
business days between the hours of 10 a.m. and 3 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.

[[Page 15548]]

    All submissions should refer to File Number SR-NYSEArca-2009-24 and 
should be submitted on or before April 27, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-7584 Filed 4-3-09; 8:45 am]
BILLING CODE 8010-01-P