[Federal Register Volume 74, Number 129 (Wednesday, July 8, 2009)]
[Notices]
[Pages 32660-32662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-15993]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60191; File No. SR-NYSEArca-2009-58]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change Amending NYSE 
Arca Equities Rule 7.31

June 30, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on June 24, 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 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 \4\ 
and Rule 19b-4(f)(6) thereunder,\5\ 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 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 NYSE Arca Equities Rule 7.31. A copy 
of this filing is available on the Exchange's Web site at http://www.nyse.com, at the Exchange's principal office 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this rule filing is to add Self-Trade Prevention 
(``STP'') modifiers to NYSE Arca Equities Rule 7.31. The proposed STP 
modifiers are designed to prevent two orders with the same ETP ID from 
executing against each other. The Exchange proposes adding four STP 
modifiers that will be implemented and made available at the Equity 
Trading Permit ID (``ETP ID'') level.\6\ The STP modifiers will not be 
automatically implemented across all ETP ID's, but rather ETP Holders 
must elect to designate each order with one of the STP modifiers. The 
STP modifier on the incoming order controls the interaction between two 
orders marked with STP modifiers. The four new STP modifiers are 
discussed more thoroughly below.
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    \6\ Each ETP Holder is assigned an ETP ID which is used as a 
firm identifier within Exchange systems.
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STP Cancel Newest (``STPN'')
    An incoming order marked with the STPN modifier will not execute 
against opposite side resting interest marked with any of the STP 
modifiers from the same ETP ID. The incoming order marked with the STPN 
modifier will be cancelled back to the originating ETP Holder. The 
resting order marked with one of the STP modifiers, which otherwise 
would have interacted with the incoming order by the same ETP Holder, 
will remain on the NYSE Arca Book.

    STPN Example 1:  An order to buy 500 shares @ $22.00 is marked 
with any of the four STP modifiers and becomes a resting order in 
the NYSE Arca Book. Subsequently, an order to sell 500 shares @ 
$22.00 is entered with the same ETP ID and marked with the STPN 
modifier.
    STPN Result 1: The incoming sell order for 500 shares @ $22.00 
marked with the STPN modifier is cancelled back to the originating 
ETP Holder. The resting buy order for 500 shares at $22.00 marked 
one of the four STP modifiers remains on the NYSE Arca Book.
    STPN Example 2:  An order to buy 500 shares @ $22.00 is marked 
with any of the four STP modifiers and becomes a resting order in 
the NYSE Arca Book. Subsequently, an order to sell 700 shares @ 
$22.00 is entered with the same ETP ID and marked with the STPN 
modifier.
    STPN Result 2: The incoming sell order for 700 shares @ $22.00 
marked with the STPN modifier is cancelled back to the originating 
ETP Holder. The resting buy order for 500 shares at $22.00 marked 
one of the four STP modifiers remains on the NYSE Arca Book.
    STPN Example 3:  An order to buy 500 shares @ $22.00 is marked 
with any of the four STP modifiers and becomes a resting order in 
the NYSE Arca Book. Subsequently, an order to sell 400 shares @ 
$22.00 is entered with the same ETP ID and marked with the STPN 
modifier.
    STPN Result 3: The incoming sell order for 400 shares @ $22.00 
marked with the STPN modifier is cancelled back to the originating 
ETP Holder. The resting buy order for 500 shares at $22.00 marked 
one of the four STP modifiers remains on the NYSE Arca Book.

STP Cancel Oldest (``STPO'')

    An incoming order marked with the STPO modifier will not execute 
against opposite side resting interest marked with any of the STP 
modifiers from the same ETP ID. The resting order marked with any of 
the STP modifiers, which otherwise would have interacted with the 
incoming order by the same ETP Holder, will be cancelled back to the 
originating ETP Holder. The incoming order marked with the STPO 
modifier will remain on the NYSE Arca Book.

    STPO Example 1:  An order to buy 500 shares @ $22.00 is marked 
with any of the four STP modifiers and becomes a resting order in 
the NYSE Arca Book. Subsequently, an order to sell 500 shares @ 
$22.00 is entered with the same ETP ID and marked with the STPO 
modifier.
    STPO Result 1: The resting buy order for 500 shares at $22.00 
marked with one of the four STP modifiers is cancelled back to the 
originating ETP Holder. The incoming sell order for 500 shares @ 
$22.00 marked with the STPO modifier is entered in the NYSE Arca 
Book.

[[Page 32661]]

    STPO Example 2: An order to buy 500 shares @ $22.00 is marked 
with any of the four STP modifiers and becomes a resting order in 
the NYSE Arca Book. Subsequently, an order to sell 700 shares @ 
$22.00 is entered with the same ETP ID and marked with the STPO 
modifier.
    STPO Result 2: The resting buy order for 500 shares at $22.00 
marked with one of the four STP modifiers is cancelled back to the 
originating ETP Holder. The incoming sell order for 700 shares @ 
$22.00 marked with the STPO modifier is entered on the NYSE Arca 
Book.
    STPO Example 3: An order to buy 500 shares @ $22.00 is marked 
with any of the four STP modifiers and becomes a resting order in 
the NYSE Arca Book. Subsequently, an order to sell 400 shares @ 
$22.00 is entered with the same ETP ID and marked with the STPO 
modifier.
    STPO Result 3: The resting buy order for 500 shares at $22.00 
marked with one of the four STP modifiers is cancelled back to the 
originating ETP Holder. The incoming sell order for 400 shares @ 
$22.00 marked with the STPN modifier entered on the NYSE Arca Book.

STP Decrement and Cancel (``STPD'')

    An incoming order marked with the STPD modifier will not execute 
against opposite side resting interest marked with any of the STP 
modifiers from the same ETP ID. If both orders are equivalent in size, 
both orders will be cancelled back to the originating ETP Holders. If 
the orders are not equivalent in size, the equivalent size will be 
cancelled back to the originating ETP Holders and the larger order will 
be decremented by the size of the smaller order with the balance 
remaining on the NYSE Arca Book.

    STPD Example 1:  An order to buy 500 shares @ $22.00 is marked 
with any of the four STP modifiers and becomes a resting order in 
the NYSE Arca Book. Subsequently, an order to sell 500 shares @ 
$22.00 is entered with the same ETP ID and marked with the STPD 
modifier.
    STPD Result 1: The resting buy order for 500 shares at $22.00 
marked with one of the four STP modifiers is cancelled back to the 
originating ETP Holder. The incoming sell order for 500 shares @ 
$22.00 marked with the STPD modifier is cancelled back to the 
originating ETP Holder.
    STPD Example 2: An order to buy 500 shares @ $22.00 is marked 
with any of the four STP modifiers and becomes a resting order in 
the NYSE Arca Book. Subsequently, an order to sell 700 shares @ 
$22.00 is entered with the same ETP ID and marked with the STPD 
modifier.
    STPD Result 2: The resting buy order for 500 shares at $22.00 
marked with one of the four STP modifiers is cancelled back to the 
originating ETP Holder. The equivalent portion, 500 shares, of the 
incoming sell order marked with the STPD modifier is cancelled back 
to the originating ETP Holder. The remaining portion, 200 shares, is 
entered on the NYSE Arca Book.
    STPD Example 3: An order to buy 500 shares @ $22.00 is marked 
with any of the four STP modifiers and becomes a resting order in 
the NYSE Arca Book. Subsequently, an order to sell 400 shares @ 
$22.00 is entered with the same ETP ID and marked with the STPD 
modifier.
    STPD Result 3: 400 of the 500 shares on the resting buy order at 
$22.00 marked with one of the four STP modifiers is cancelled back 
to the originating ETP Holder. The outstanding 100 shares remain on 
the NYSE Arca Book. The incoming sell order for 400 shares @ $22.00 
marked with the STPD modifier is cancelled back to the originating 
ETP Holder.

STP Cancel Both (``STPC'')

    An incoming order marked with the STPC modifier will not execute 
against opposite side resting interest marked with any of the STP 
modifiers from the same ETP ID. The entire size of both orders will be 
cancelled back to originating ETP Holder.

    STPC Example 1:  An order to buy 500 shares @ $22.00 is marked 
with any of the four STP modifiers and becomes a resting order in 
the NYSE Arca Book. Subsequently, an order to sell 500 shares @ 
$22.00 is entered with the same ETP ID and marked with the STPC 
modifier.
    STPC Result 1: The resting buy order for 500 shares at $22.00 
marked with one of the four STP modifiers is cancelled back to the 
originating ETP Holder. The incoming sell order for 500 shares @ 
$22.00 marked with the STPC modifier is cancelled back to the 
originating ETP Holder.
    STPC Example 2: An order to buy 500 shares @ $22.00 is marked 
with any of the four STP modifiers and becomes a resting order in 
the NYSE Arca Book. Subsequently, an order to sell 700 shares @ 
$22.00 is entered with the same ETP ID and marked with the STPC 
modifier.
    STPC Result 2: The resting buy order for 500 shares at $22.00 
marked with one of the four STP modifiers is cancelled back to the 
originating ETP Holder. The incoming order to sell 700 shares @ 
$22.00 marked with the STPC modifier is cancelled back to the 
originating ETP Holder.
    STPC Example 3:  An order to buy 500 shares @ $22.00 is marked 
with any of the four STP modifiers and becomes a resting order in 
the NYSE Arca Book. Subsequently, an order to sell 400 shares @ 
$22.00 is entered with the same ETP ID and marked with the STPC 
modifier.
    STPC Result 3: The resting buy order for 500 shares at $22.00 
marked with one of the four STP modifiers is cancelled back to the 
originating ETP Holder. The incoming order to sell 400 shares @ 
$22.00 marked with the STPC modifier is cancelled back to the 
originating ETP Holder.

    STP modifiers are intended to prevent interaction between the same 
ETP ID. STP modifiers must be present on both the buy and the sell 
order in order to prevent a trade from occurring and to effect a cancel 
instruction. STP modifiers are available for orders entered in either 
an agency or principal capacity. An incoming STP order cannot cancel 
through resting orders that have price and/or time priority. When an 
order with an STP modifier is entered it will first interact will all 
available interest in accordance with the Order Ranking and Display 
process pursuant to Exchange Rule 7.36. If there is a remaining balance 
on the order after trading with all orders with higher priority, it may 
then interact with an opposite side STP order in accordance with the 
rules established above. In situations where there are multiple STP 
orders resting in the NYSE Arca Book, an incoming STP order interacts 
only with the first resting STP order that it encounters. Incoming STP 
orders that are priced through the price of a resting STP order may 
cancel the resting order as long as no other non-STP orders have 
priority. Additionally, orders marked with one of the STP modifiers 
will not be prevented from interacting during any Auction process as 
defined by Rule 7.35.
    The Exchange believes that adding this functionality will allow 
firms to better manage order flow and prevent undesirable executions 
with themselves or the potential for (or the appearance of) ``wash 
sales'' that may occur as a result of the velocity of trading in 
today's high speed marketplace. Commonly ETP Holders have multiple 
connections into the Exchange due to capacity and speed related 
demands. Orders routed by the same ETP Holder via different connections 
may, in certain circumstances, trade against each other. The new STP 
modifiers provide ETP Holders the opportunity to prevent these 
potentially undesirable trades occurring under the same ETP ID on both 
the buy and sell side of the execution. The Exchange also believes that 
this functionality will allow firms to better internalize agency order 
flow which in turn may decrease the costs to its customers. The 
Exchange notes that the STP modifiers do not alleviate, or otherwise 
exempt, broker-dealers from their best execution obligations. As such, 
broker-dealers using the STP modifiers will be obligated to internally 
cross agency orders at the same price, or a better price than they 
would have received had the orders been executed on the Exchange. 
Additionally, the STP modifiers will assist market participants in 
complying with certain rules and regulations of the Employee Retirement 
Income Security Act (``ERISA'') that preclude and/or limit managing 
broker-dealers of such accounts from trading as principal with orders 
generated for those accounts. Finally, the Exchange

[[Page 32662]]

notes that offering the STP modifiers will streamline certain 
regulatory functions by reducing false positive results that may occur 
on Exchange generated wash trading surveillance reports when orders are 
executed under the same ETP ID. For these reasons, the Exchange 
believes the STP modifiers offer users enhanced order processing 
functionality that may prevent potentially undesirable executions 
without negatively impacting broker dealer best execution obligations.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \7\ of the 
Securities Exchange Act of 1934 (the ``Exchange Act''), in general, and 
furthers the objectives of Section 6(b)(5) \8\ in particular 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, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system. 
This functionality will allow firms to better manage order flow and 
prevent undesirable executions against themselves.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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 \9\ and Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). 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. The Exchange has fulfilled this requirement.
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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. 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 so that the benefits of this functionality 
to NYSE Arca market participants expected from the rule change will not 
be delayed. The Commission believes that waiving the 30-day operative 
delay to make this functionality available without delay is consistent 
with the protection of investors and the public interest. Therefore, 
the Commission designates the proposal operative upon filing.\11\
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    \11\ 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).
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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-NYSEArca-2009-58 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-NYSEArca-2009-58. 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-2009-58 and should 
be submitted on or before July 29, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-15993 Filed 7-7-09; 8:45 am]
BILLING CODE 8010-01-P