[Federal Register Volume 74, Number 220 (Tuesday, November 17, 2009)]
[Notices]
[Pages 59294-59296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-27501]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60969; File No. SR-NYSE-2009-96]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 2 
Thereto, Permitting Affiliation With NYFIX Millennium LLC and NYFIX 
Securities Corporation

November 9, 2009.

I. Introduction

    On September 22, 2009, the New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') a proposed rule change, pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 thereunder,\2\ proposing that the Exchange be affiliated with two 
registered broker-dealer subsidiaries of

[[Page 59295]]

NYFIX, Inc. (``NYFIX''), NYFIX Millennium L.L.C. (``NYFIX Millennium'') 
and NYFIX Securities Corporation (``NYFIX Securities''), for a period 
not to exceed six months and subject to certain limitations and 
obligations. The proposed rule change was published for comment in the 
Federal Register on October 5, 2009.\3\ On November 5, 2009, NYSE filed 
Amendment No. 1 to the proposed rule change, and the Exchange withdrew 
Amendment No. 1 to the proposed rule change on November 6, 2009. On 
November 9, 2009, NYSE filed Amendment No. 2 to the proposed rule 
change.\4\ The Commission received no comments on the proposal. This 
order approves the proposed rule change as modified by Amendment No. 2.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 60737 (September 29, 
2009), 74 FR 51209 (``Notice'').
    \4\ In Amendment No. 2, the Exchange clarified that, with 
respect to the conditions on the Exchange's affiliation with NYFIX 
Millennium and NYFIX Securities, references to NYFIX also refer to 
its subsidiaries, NYFIX Millennium and NYFIX Securities. This 
technical amendment does not require notice and comment, as it did 
not materially affect the substance of the rule filing.
---------------------------------------------------------------------------

II. Overview

    On August 26, 2009, NYSE Technologies entered into an Agreement and 
Plan of Merger (``Merger Agreement'') with NYFIX and CBR Acquisition 
Corp., a Delaware corporation and a wholly owned subsidiary of NYSE 
Technologies. Under the terms of the Merger Agreement, CBR Acquisition 
Corp. will merge with and into NYFIX, with NYFIX surviving the merger 
as a direct wholly owned subsidiary of NYSE Technologies (``Merger''). 
Following the Merger, both the Exchange and NYFIX will be indirect 
wholly owned subsidiaries of NYSE Euronext. Consequently, NYFIX, and 
its subsidiaries NYFIX Millennium and NYFIX Securities, will be 
affiliates of the Exchange.
    As a result of the Merger, NYSE Technologies will acquire, among 
other things, NYFIX's Transaction Services Division. In the U.S., the 
Transaction Services Division is currently composed of two U.S. 
registered broker-dealer subsidiaries: NYFIX Millennium, which is also 
an alternative trading system registered under Regulation ATS under the 
Act;\5\ and, NYFIX Securities. In addition to other services provided 
by NYFIX Millennium and NYFIX Securities, (1) NYFIX Millennium provides 
routing of orders that are not matched within the NYFIX Millennium 
matching system to marketplaces such as exchanges, electronic 
communication networks, and ATSs, which are not operated by NYFIX; and 
(2) NYFIX Securities provides direct electronic market access and 
algorithmic trading products (together, ``Routing Services'').
---------------------------------------------------------------------------

    \5\ 17 CFR 242.300-303.
---------------------------------------------------------------------------

    The Exchange proposes to be affiliated with NYFIX Millennium and 
NYFIX Securities for a period not to exceed six months and subject to 
certain terms and conditions that the Exchange believes effectively 
address concerns regarding the (1) the potential for conflicts of 
interest where an exchange is affiliated with a broker-dealer 
conducting an order routing business that may interact with the 
Exchange itself, and (2) the potential for informational advantages 
that could place such an affiliated broker-dealer at a competitive 
advantage in comparison with other non-affiliated broker-dealers.

III. Discussion and Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\6\ In particular, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\7\ which 
requires, among other things, that the rules of a national securities 
exchange be 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 regulating, 
clearing, settling, and 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.
---------------------------------------------------------------------------

    \6\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In the past, the Commission has expressed concern that the 
affiliation of an exchange with one of its members raises potential 
conflicts of interest and the potential for unfair competitive 
advantage.\8\ The proposed relationship raises similar concerns in that 
the Exchange will be affiliated with two broker-dealers that provide 
Routing Services for orders that may be routed to the Exchange in 
competition with Exchange members. The Exchange has requested that the 
Commission approve its proposed affiliation with NYFIX Millennium and 
NYFIX Securities on a temporary basis, not to exceed six months, 
subject to certain conditions designed to address such concerns.
---------------------------------------------------------------------------

    \8\ See, e.g., Securities Exchange Act Release Nos. 54170 (July 
18, 2006), 71 FR 42149 (July 25, 2006) (SR-NASDAQ-2006-006) (order 
approving Nasdaq's proposal to adopt Nasdaq Rule 2140, restricting 
affiliations between Nasdaq and its members); 53382 (February 27, 
2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) (order 
approving combination of NYSE and Archipelago Holdings, Inc.); 58673 
(September 29, 2008), 73 FR 57707 (October 3, 2008) (SR-Amex-2008-
62) (order approving acquisition of the American Stock Exchange by 
NYSE Euronext); 59135 (December 22, 2008), 73 FR 79954 (December 30, 
2008) (SR-ISE-2009-85) (order approving the purchase by ISE Holdings 
of an ownership interest in DirectEdge Holdings LLC); and 59281 
(January 22, 2009), 74 FR 5014 (January 28, 2009) (SR-NYSE-2008-120) 
(order approving a joint venture between NYSE and BIDS Holdings 
L.P.).
---------------------------------------------------------------------------

    Specifically, so long as the Exchange is affiliated with NYFIX 
Millennium or NYFIX Securities and with respect to the Routing Services 
provided by each: \9\
---------------------------------------------------------------------------

    \9\ For the conditions set forth below, references to NYFIX also 
refer to its subsidiaries NYFIX Millennium and NYFIX Securities. See 
Amendment No. 2, supra note 4.
---------------------------------------------------------------------------

    (1) Neither NYFIX Millennium nor NYFIX Securities are members of 
the Exchange nor will they become members of the Exchange;
    (2) NYFIX does not offer order routing services other than the 
Routing Services, and none of the Routing Services will be modified 
unless such modification is approved by the Commission;
    (3) NYFIX will not engage in proprietary trading;
    (4) NYFIX will not accept any new clients for the Routing Services 
after the Merger;
    (5) There will continue to be independent functionality of, and 
full public access to, NYSE facilities; and
    (6) There will be a complete separation between NYFIX, on the one 
hand, and the Exchange and its affiliates, on the other (e.g., no 
shared office space, no shared employees, no shared systems).
    The Exchange may furnish to NYFIX the same information on the same 
terms that the Exchange makes available in the normal course of 
business to any other person. Specifically:
    (a) NYFIX must not be provided an information advantage concerning 
the operation of the Exchange or any of its facilities, particularly 
regarding changes and improvements to the trading systems, that are not 
available to the industry generally.
    (b) NYFIX will be prevented from having any advance knowledge of 
proposed changes or modifications to the operations of the Exchange or 
its facilities, including but not limited to advance knowledge of 
related filings by

[[Page 59296]]

the Exchange pursuant to Rule 19b-4 of the Act.\10\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78a.
---------------------------------------------------------------------------

    (c) NYFIX will not share employees or databases with the Exchange, 
any facility of the Exchange, or any other affiliate of the Exchange or 
their facilities, and will be housed in a separate office.
    (d) NYFIX will only be notified of any changes or improvements to 
any of the Exchange's operations or trading facilities in the same 
manner that other persons are notified of such changes or improvements;
    (e) NYFIX will not disclose any system or design specifications, or 
any other information, to any employees of the Exchange, any facility 
of the Exchange, or any other affiliate of the Exchange or their 
facilities that would give NYFIX an unfair advantage over its 
competitors.
    (f) None of the Exchange, any facility of the Exchange, or any 
other affiliate of the Exchange or their facilities will disclose any 
system or design specifications, or any other information, to any 
employees of NYFIX or any affiliate of NYFIX that would give the 
Exchange, any other facility of the Exchange, any other affiliate of 
the Exchange, or NYFIX an unfair advantage over its competitors.
    The Commission also notes that each of NYFIX Millenium and NYFIX 
Securities has the Financial Industry Regulatory Authority (``FINRA''), 
an unaffiliated self-regulatory organization (``SRO''), as its 
designated examining authority and neither broker-dealer is a member of 
the Exchange.\11\
---------------------------------------------------------------------------

    \11\ See Notice.
---------------------------------------------------------------------------

    The Commission finds that the temporary proposed affiliation 
between the Exchange and NYFIX Millennium and NYFIX Securities, 
pursuant to the proposed terms and conditions, is consistent with the 
Act, particularly Section 6(b)(5) thereunder.\12\ The Commission 
continues to be concerned about potential unfair competition and 
conflicts of interest when an exchange, or one of its affiliates, is 
the parent company of a broker-dealer that provides Routing Services 
that may be in competition with services provided by members of that 
exchange. The Commission believes, however, that the temporary nature 
of the affiliation, together with the proposed terms and conditions, 
are reasonably designed to mitigate concern about potential unfair 
competition and conflicts of interest between the commercial interests 
of the Exchange or its affiliates, and the Exchange's regulatory 
responsibilities.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-NYSE-2009-96), as amended, 
is hereby approved.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-27501 Filed 11-16-09; 8:45 am]
BILLING CODE 8011-01-P